Ruling a blow to Blue Cross rate hike plan

Preliminary decision would not be as hard on seniors who buy Medigap coverage

Louis Aguilar / The Detroit News

Michigan Blue Cross Blue Shield's bid for a 31 percent rate hike for supplemental Medicare insurance hit a road block Friday.

An administrative law judge for the state's Office of Financial Insurance Regulation ruled that the Blues can raise the rate for coverage known as Medigap by 3.8 percent, or about $4 a month, starting Feb. 1 -- well below the $400 annually, or $33 a month -- the insurer is seeking.

About 210,000 Michigan seniors use Medigap to supplement their Medicare coverage.

Friday's ruling was preliminary; Insurance Commissioner Ken Ross will make the final decision on a hike in early December, said John Sellek, spokesman for state Attorney General Mike Cox. Blue Cross also could appeal Friday's ruling.

Cox, who had battled the proposed increase, called the ruling "great news" and said it would save senior citizens $85 million in the first year.

Blue Cross, Michigan's largest insurer, requested the rate hike in January as it tries to stem losses on the policies it sells to people without workplace medical coverage. The insurer said it lost about $133 million in 2008 on those individual policies.

As part of its tax-exempt status, Blue Cross must insure any Michigan resident, regardless of medical condition, who can't get coverage elsewhere.

State law allows Blue Cross to collect a 1 percent subsidy fee on all revenue generated from the premiums paid by group members. State regulators and Cox say Blue Cross is collecting only a portion of that now -- $113 million -- and should collect the fully allotted amount of 1 percent under state law.

Blue Cross contends that to collect the full subsidy, estimated at $182 million a year, it would have to expand the fee to all groups, including Medicare Advantage and MiChild, a low-cost option for children in working families. These fees would be difficult to collect because they're both government-backed programs, Blue Cross says.

A Blue Cross spokeswoman said Friday the insurer is concerned by the administrative law judge's interpretation of how the subsidy should be structured.

laguilar@detnews.com (313) 222-2760 Associated Press contributed