Blue Cross and Blue Shield of Maryland has been reaping millions of dollars from discounted hospital rates granted it for its role as an insurer of last resort -- providing health insurance to those who can't get coverage elsewhere.
Hospital bills for such individuals, who sign up with Blue Cross during annual open-enrollment periods, totaled about $2 million in 1991, according to information filed with state insurance regulators. At the same time, Blue Cross received a 4 percent discount in all of its hospital bills, which amounted to $20 million.
According to John M. Colmers, executive director of the Maryland Health Services Cost Review Commission, Blue Cross told the commission in the past that it could not separate out the cost of care for those people it insured during open-enrollment periods from its other nongroup business. The Blues reported a hospital bill for all these groups together of about $26 million last year.
However, Mr. Colmers said his office learned this year that the insurer did separate out the groups in information it provided state insurance regulators. It showed that only $2 million of the $26 million in 1991 hospital bills was incurred by people who signed up during open enrollment.
"Our interest has been perked by this and we are going to investigate the difference between these figures," Mr. Colmers said. The Health Services Cost Review Commission regulates hospital rates in Maryland.
"We want to be sure whoever qualifies for the [discount] is in fact earning it. If the Blues demonstrate they earned it, they will have it. If they are not able to demonstrate it, it is appropriate that it be taken away," he said.
Even without the discounted hospital bills, the insurer earned an underwriting profit on its open-enrollment coverage, collecting $3.8 million in premiums while paying $2.6 million in medical claims to both doctors and hospitals, according to the insurance division's records. State regulators are now seeking comparable figures for 1992.
John A. Picciotto, Blue Cross vice president and senior counsel, said yesterday that the figures were not inconsistent and the insurer is prepared to defend its discount.
He said the hospital discount is given to insurers on the basis of how well it meets a number of criteria, only one of which is the promise to insure those deemed too medically risky by commercial companies.
Another justification for the discount is the Blues' group conversion plan, he said. Under it, people who drop from, or are forced out of, a group plan have the automatic right to continue their coverage by the Blues at rates established for the conversion group.
The $26 million in hospital costs includes people who signed up under this program, he said.
"The reports filed with the hospital commission in our view have clearly stated that what we were reporting as hospital costs were not just for 2,500 [people] in open enrollment but all people in the open market division," he said.
Blue Cross, because it offers coverage during open-enrollment periods to all comers, including those whose medical problems make them bad risks for commercial companies, is known as an insurer of last resort.
Past management often cited the necessity of preserving its mission as a nonprofit insurer of last resort to justify its forays into other for-profit ventures as well as its special status in the state health care system.
For years, Blue Cross has received special benefits for this role, including an exemption from the tax on insurance premiums paid by its competitors -- worth $14 million in 1991 -- and the 4 percent discountfrom hospitals.
Blue Cross is the principal source of insurance in the state for those rejected by other companies. The Blue Cross plan for the Washington metropolitan area, the four health maintenance groups owned by Maryland Blue Cross, and two commercial HMOs -- Prudential and Capital Care -- also qualify for the hospitals' open-enrollment discounts.
The justification for Blue Cross or any insurer receiving a discount for offering insurance to all comers, Mr. Colmers said, is that the cost of the uninsured's hospital bills are paid by everybody else in the form of higher hospital rates. The idea was that making insurance available to everyone would reduce the number of uninsured people, thus lowering the cost of uncompensated care.
The program has been in effect since the 1970s, but the number of uninsured people in the state remains high -- it reached a record 561,000 last year.
The rates for open enrollment have risen anywhere from 11 percent to 41 percent a year since 1987. An individual paid $1,437 under open enrollment and a family paid $3,541 in 1992.