The history of Blue Cross contribution to the adultBasic ...



The history of Blue Cross contribution to the adultBasic program dates back to the Community Health Reinvestment Agreement (CHR Agreement) entered into in 2005. That Agreement grew out of proceedings then pending before the Department of Insurance concerning the size of Blue Cross reserves and excess surplus. Both the Insurance Commissioner, Diane Kokken,[1] and members of the public, including organizations[2] represented by my organization and the Pennsylvania Health Law Project expressed a belief that the Blues were amassing excess surpluses that were contrary to their statutory charitable mission to provide insurance to those who were otherwise unable to obtain coverage.

In essence, the four Blue Cross Plans are “institutions of purely public charity” that can qualify for tax exemption under the Pennsylvania Constitution, Article VIII, §§ 2(a)(i) and (a)(vi). In order to qualify as institutions of purely public charity they must serve a charitable purpose and render a substantial portion of its services for free or at greatly reduced, subsidized price, and relieve the government of some of its burden.[3] A strong case could be made that the size of the surplus being amassed was, and is, inconsistent with the mission of purely public charity. Eventually, this part of the proceedings before the Insurance Commissioner was resolved when the Blues entered into the CHR Agreement that they would set aside a percentage of their premiums for community purposes and that of that set aside fund 60% would be dedicated to the funding of the adultBasic program. As you know, that Agreement expires December 31, 2010, but the obligation to imposed on charitable institutions remains. As a result of that Agreement, thousands of Pennsylvanians have received health insurance that they would otherwise not have been able to afford and the Commonwealth has benefitted from being relieved of the burden of even more of its citizens having to rely upon the Medical assistance program. Although there are provisions in the CHR Agreement for the Blues to withdraw or seek relief if the burden became too onerous, no such effort was made, and indeed the Blues have continued to add to their reserves.

The General Assembly expressed concern that the Blues were not devoting a fair amount of their resources to charitable purposes. In passing Act 62 of 2008, the Legislature made it clear that only well defined contributions would count toward the overall obligation of the Blues. Apparently the general Assembly was reacting to what we had known for years – that the Blues had a long history of creating book keeping to hide advertising, public relations and creative accounting as “charitable contributions.” Yet even after the passage of Act 62, the Blues submitted vague and probably illegal accounts of how they had complied with the CHR and how they had satisfied the obligation to devote 40% of their contributions to other charitable purposes. Incredibly, when the Insurance Department asked for further information, the information provided was filed as proprietary information that was not made part of the public record.

HB 2455 seeks to continue the Blues responsibility to contribute to the funding of the adultBasic program until the federal Health Care Reform legislation takes effect in 2014. At that point adultBasic will no longer be necessary due to the federal expansion of Medicaid and the subsidization of Health Exchanges which will provide subsidies for those low income and working people who do not qualify for expanded Medicaid. Certainly the Blues can afford the relatively modest amount that it would take to continue the operation of the adultBasic program.

Two features of HB 2455 deserve some attention. First, raising the percentage of charitable contribution to 95% of the charitable contribution will end the book keeping controversies that have taken over the annual filings and necessitated the passage of Act 62. In addition, given the extraordinary waiting list, approaching 400,000, or more than 3% of the population of the state, the geometric growth of the Medicaid program during a very bad recession and the alarming erosion of employer based insurance in the Commonwealth, it is wise to devote as many resources as possible to this pressing need.

Second, the contribution level of 2.4% of premiums is a reasonable assessment, given the tax rate that for profit insurance companies pay. While it is true that the CHR Agreement required a 1.6% contribution, the CHR also required a contribution of 1.0% of Medicare and Medicaid premiums, while HB 2455 has no assessment at all on those publicly funded premiums. Indeed, the total contribution of the Blues may actually go down as a result of the alteration of the formula???? In the proceedings before the Insurance Commissioner, an assessment of 3.75% was being sought.

Furthermore, it should not be forgotten that the Blues are also exempt from other forms of taxation, in addition to Insurance premium levies and, under the terms of HB 2455, are protected from any assessment more than 110% of what was required under the CHR. In short, the distribution allocation and the assessment is quite reasonable and is needed to fulfill what is in fact the mission of the Blues – to make health insurance affordable and available to all Pennsylvanians.

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[1] The Commissioner’s inquiry was officially known as In Re: Reserve and Surplus Levels of Hospital Plan and Professional Health Services Plan Corporations, Notice 2004-01.

[2] The 11 organizations challenging the level of surplus were: Philadelphia Unemployment Project, Consumer Health Coalition, Mon Valley Unemployed Committee, Service Employees International Union, Pennsylvania State Council, PENNPIRG Education Fund, Philadelphia Citizens for Children and Youth, Pennsylvania Alliance for Retired Americans, Action Alliance of Senior Citizens of Greater Philadelphia, PHILAPOSH, Philadelphia Welfare Rights Organization, Citizens for Consumer Justice, Jobs With Justice,

Women’s Law Project, Consumers Union Of The U.S., Inc.

[3] This standard was set forth by the Supreme Court in Hospital Utilization Project v. Commonwealth of Pennsylvania, 507 Pa. 1, 487 A 2d 1315 (1987)

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