Insurance 'windfall' faces cut $21.3 million incentive to Blue Cross, but only $4.3 million in claims


State hospital rate regulators proposed yesterday revising a discount program for "insurers of last resort" that critics say provides a multimillion-dollar windfall for Blue Cross Blue Shield of Maryland.

Also, the rate-setters released preliminary estimates for adjusting rates that the Maryland Hospital Association said could lead to cuts of as much as 5 percent at some Maryland hospitals next year.

The discount program currently provides a 4 percent break on hospital charges to insurers that offer "open enrollment" coverage to all comers, regardless of their medical history. By encouraging insurers to make policies available easily and at reasonable cost, it is designed to reduce the number of uninsured.

But, while Maryland has about 700,000 uninsured, only about 5,000 people are covered under these "last resort" policies.

And, said the staff of the Health Services Cost Review Commission in its report and recommendations, "the value of the differential outweighs the benefits of open enrollment."

For example, according to the staff report, Blue Cross Blue Shield of Maryland, which accounts for the bulk of open enrollment policies in Maryland, received $21.3 million in discounts last year, but paid only $4.3 million in claims for those covered by them.

New rules should cap the discount at twice the amount of claims paid, the staff recommended.

Livio Broccolino, chief legal officer for Blue Cross Blue Shield of Maryland, said the discount plan "should offer a meaningful incentive for carriers to participate, and at first blush, I don't think these recommendations would do that."

He said the insurer would have more comment when it had more time to analyze the state report. He urged the commission to seek wide public input before acting.

In addition to changing the method of calculating the discount, the staff recommended that "last resort" policies be updated and standardized, ideally to offer the same package of benefits the state has established for small-group insurers.

Without standardization, it is difficult for consumers to compare plans. Besides the Maryland Blues, "last resort" policies are offered by Blue Cross of the National Capital Area, Prudential and NYLCare.

A change in the discount would not affect overall hospital revenues, but would mean somewhat lower costs for commercial insurers that have not participated, said Robert Murray, executive director of the cost review commission.

Also discussed at yesterday's commission meeting were preliminary estimates generated by a revised formula the commission uses to calculate how much hospitals can adjust their rates for inflation.

The new formula, and the fact that Maryland hospital costs last year rose faster than the national average, could mean some hospitals would be forced to cut rates for the first time.

Larry Lawrence, vice president of the Maryland Hospital Association, urged the commission to find some way of softening the blow to the affected hospitals, which were not identified.

"Our concern is that the magnitude of the adjustment has exceeded what anyone has contemplated," he said.

Unless the commission acts, the new adjustments will begin in April.

Murray estimated that hospitals, on average, would get rate increases of about 3 percent under the revised formula, and that the revisions had been necessary to keep Maryland's cost increases under the national average.

"It's not unusual for hospitals to be lowering rates these days," he said.

Pub Date: 12/05/96

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