Michigan Blue Cross to Become Taxable Non-Profit Entity

Michigan Gov. Rick Snyder (R) signed a law raising the taxability of Blue Cross Blue Shield of Michigan by millions in exchange for reducing regulatory barriers, according to a report by the Detroit Free Press.

Under the law, the Detroit-based health plan will lose some of its tax-exempt status as it converts to a non-profit mutual insurance company. When that happens, Blue Cross will begin paying an estimated $90 million annually in state and local taxes and will be required to donate $1.5 billion over 18 years to a state health endowment fund.

The deal is supported by both parties, with government officials gaining needed tax revenue and Blue Cross leaders shedding onerous oversight over such decisions as rate increases, though CEO Dan Loepp told the Free Press he did not expect rates to rise as a result. Blue Cross holds about 70 percent of Michigan's commercial insurance market, according to the report.

Gov. Snyder also signed legislation banning "most-favored nation" contracts between insurers and hospitals, in which providers grant market-dominant insurers with extra generous discounts by cost shifting onto competing health plans. The U.S. Justice Department filed a suit against Blue Cross in 2010 alleging it had frequently engaged in this tactic.

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