Category: Cost of Healthcare, Health Insurance

WHY YOU NEED US TO KEEP A STRONG SAFETY NET

The trickle started slowly, with just a couple of relatives.

On Aug. 28, 2005, I, my wife and our three kids began to get some company. First, we had the five of us plus a mother-in-law. Then, my brother-in-law, his wife and two more kids came to stay. Then, the brother-in-law’s wife’s sister, her husband and her grandmother showed up. Then, the brother-in-law’s wife’s sister’s husband’s parents, grandparents, sister and family arrived. They just kept coming until there were 23 of them!  People I had never met before had filled our house. We didn’t turn anyone away. I’ve lived in Louisiana my entire life, all 54 years, and that’s how we do it here. This is Our Home.

“Thank God you invited us!” said a friend of a relative, parking his camper in our driveway. This one had eight feet of water in his house. That one had her house split in half by a tree. The other one had no house left, just a slab where it used to be. They came with 10 dogs, even a very noisy bird! But we were so blessed to shelter them.

The flooding after Hurricane Katrina turned half a million people’s lives upside down in a single day. Some of our 23 guests stayed for months, some for a solid year. Frankly, I was thrilled to be able to help them forget their worries for a bit, and they had lots of them.

Guess what worry they didn’t have? Whether or not they could go to the doctor, get their prescriptions filled or get healthcare covered if they needed it. As luck would have it, every single one of the 23 had a Blue Cross card in his or her pocket.

Within a few days of Katrina, Blue Cross leaders like then-CEO Mike Reitz decided, and our Board of Directors supported the position, not to cancel coverage for non-payment for ANYONE who was in the flooded areas, no matter where they ended up living. That decision meant tens of thousands of our fellow Louisianians couldn’t pay us, but we kept paying for them, making sure they got their prescriptions filled and their hospital bills paid. We protected them for at least six months without any payments coming in. We even hand delivered checks to hospitals and doctors in the affected areas to make sure they could keep seeing patients.

This level of care by a private company was unheard of. Louisiana’s Insurance Commissioner at the time, Robert Wooley, was so moved that he ordered every other health insurance company doing business in Louisiana to follow suit (but only for three months).

Guess what worry they didn’t have? Whether or not they could go to the doctor, get their prescriptions filled or get healthcare covered if they needed it. As luck would have it, every single one of the 23 had a Blue Cross card in his or her pocket.

How could we do it? Pay out all that money for their healthcare without any money coming in?

The reason we could afford to pay for it was our “reserve fund.” A reserve fund is simply a savings account, safety net or rainy-day fund. Katrina/Rita was the ultimate rainy day.

As a not-for-profit, member-owned insurance company, we don’t have many options when things go wrong. We can’t create stock or have a public offering to raise money from the marketplace. We can’t borrow without lots of collateral. We can’t keep regulators satisfied without making them confident we can pay our members’ healthcare bills into the future. We compensate for these limitations by creating a savings account and trying to put a little money into it each year. Just like your family, we need savings to make sure we can take care of folks when things go wrong.

The reason we could afford to pay for it was our “reserve fund.” A reserve fund is simply a savings account, safety net or rainy-day fund. Katrina/Rita was the ultimate rainy day.

That savings account is not “static” money; it is invested, and the return on that investment gets added to our revenue to help keep premiums and expenses under control. We have been blessed that we have had decades of strong growth and tight expense control, and your reserve fund is now strong enough to support the size of our operations.

Oh, did I mention that the reserves are yours? Well, they are. If you are a Blue Cross contract holder, it’s YOUR money. Now, here’s the Straight Talk part.

Today, you have a little over $1 billion in your reserve fund. That represents decades of scrimping and saving to make sure your company is financially sound. Sounds like a lot of money. I can hear you out there already, don’t worry: “But Mike, if you’ve got $1 billion in the bank, why do my rates go up every year? Why is insurance so expensive?”

Top notch questions! Top notch! Thanks for asking!

Here’s why: Because $1 billion is just a fraction of what it takes to pay our bills each year. And of course, the price of the healthcare we have to buy for you never goes down. Hospital bills, doctor bills, prescription drugs, tests, scans — it is all getting more expensive faster than the rate of regular inflation, sometimes much faster. To better illustrate this, let’s try an experiment and put you in charge of the reserve fund. It is YOURS after all.

Congratulations! Since you are the Big Cheese now, I’m legally obligated to give you some very important information because YOU are directly responsible for paying for the healthcare needs of over 660,000 people who are fully insured members of Blue Cross. If you mess that up, well, the legal repercussions could be serious. And of course, some very sick people might not get the healthcare they need.

So the first thing I need to tell you is how much healthcare your fellow Blue Cross customers use.

Last year (2015), they used more than $2.73 billion in direct healthcare costs, plus another $408 million in taxes, fees and operational expenses, for a total of $3.14 billion! (And by the way, the actual healthcare your fellow Blue Cross customers used was much higher, because the $3.14 billion DOES NOT include what you and your fellow members paid out of your own pockets in deductibles, copays and coinsurance!)

That’s $3.14 billion a year, or $261 million a month, or $8.6 million a day, or $358,000 every single hour of every single day of the year — 24 hours a day, seven days a week.

Now, knowing what it takes to keep their healthcare paid for and what kind of disasters we get around here like fires, floods, hurricanes, downturns in the oilfield, budget crises at the capitol or even healthcare reform turning your market upside down, how much money would YOU like to have in the bank? Enough to pay their bills for one month? Two months? Three?

If you do the math, you can see that the current reserve fund could keep the operation running for about three months, and then bad things would begin to happen. After all, even federal healthcare reform can be a big drain on reserves.

That’s $3.14 billion a year, or $261 million a month, or $8.6 million a day, or $358,000 every single hour of every single day of the year — 24 hours a day, seven days a week.

On Jan. 1, 2014, our individual health insurance market opened up to everyone regardless of their health conditions. Tens of thousands of people who had never had insurance before, and were nursing a lot of untreated health conditions, were able to use Blue Cross money and get well. They needed MUCH more healthcare than they paid in via their premiums, and we lost so much money on those folks in 2015 that they drove the whole company to a loss. Ten different health insurance companies nationwide in 2015 folded and went out of business when they lost less money than we did during 2015. But just like my house during Katrina, Blue Cross didn’t turn any Louisianian away for being too sick or because we ran out of money.

Because you had strong reserves, you were able to get those people well by converting more than $60 million of reserves into healthcare for these new customers, while still taking care of all the rest of our members who were counting on you. Without those strong reserves, we’d be having a very different conversation right now, and you wouldn’t be enjoying it. Neither would we.

And right now, the odds are you are going to have convert some more reserves into healthcare to get through 2016. Hopefully not as much, but thank goodness you have a savings account!

Because of prudent investment and careful planning over the past few decades, you and I now are owners of a Louisiana-strong company that can weather things like Katrina, Rita,  North Louisiana flooding, serious downturns in the oil industry, epidemics, and, yes, even state budget crises and federal healthcare reform and still make sure everybody gets their healthcare paid for. I couldn’t be prouder of our mission: To improve the health and lives of all Louisianians.

That’s not easy to do, but we are proud of the money we have saved up for all of you, and just as proud that we were able to convert that money into healthcare when it was needed the most, in 2005 and in 2015, without interrupting anyone’s care in Louisiana. Your money and your faith in us make that possible. So, thank you!

After all, this is Our Home.

mrb

Posted on: April 12, 2016

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