By Renee Dudley, The Post and Courier
Published May 23, 2011
In a meeting at the Statehouse last month, a small group of state officials, legislators and residents representing special interests gathered to decide how health insurance should be bought and sold in years to come.
The South Carolina Health Planning Committee, formed using a federal grant of $1 million, is charged with setting up a health insurance exchange — an online marketplace where an estimated 700,000 South Carolinians will compare and purchase health insurance policies when federal health care reform takes full effect in 2014.
A health insurance exchange is an online marketplace where an estimated 700,000 South Carolinians will compare and purchase health insurance policies once federal health care reform takes full effect in 2014. State exchanges that have not made adequate progress by the end of next year will be subject to federal control.
So far, a chasm exists between the group’s rhetoric and the progress it has reported to the federal government, as officials tread a fine line between fulfilling federal obligations and appeasing political supporters who oppose health care reform, observers note.
In any case, the group’s efforts have set off alarms among some watchdogs and health care economists. Among their concerns:
Without a proper voice, prospective consumers — residents who now are uninsured and employees of small businesses — could be left to choose from among low-benefit plans that help insurers boost profits, watchdogs said.
And the state’s biggest insurance company would reinforce its already dominant position by helping oversee the exchange where its own products will be sold, they said.
“They’re going to want as much influence on that exchange as possible,” said Frank Knapp, president of the S.C. Small Business Chamber of Commerce. “They’re in business to keep out competition, and the exchange threatens that.”
Added Columbia health care consultant Lynn Bailey, “They want to make sure there are no rules they can’t finesse around.”
Asked for an explanation of its views on the formation of an exchange, Blue Cross Blue Shield released a statement and did not respond to requests for interviews or elaboration. “The development of insurance exchanges is a very complex subject. Blue Cross supports developments that are in the best interest of the people of South Carolina,” the statement said.
South Carolina is one of 26 states that have sued the federal government to void the federal Patient Protection and Affordable Care Act. But barring a repeal of the federal law, all states must establish so-called health insurance exchanges.
State exchanges that have not made adequate progress by the end of 2012 will be subject to federal control.
State exchanges, envisioned as websites and hot lines where uninsured residents and small businesses will compare health policy benefits and prices, may be administered by an independent nonprofit group or as part of a state agency.
If the state decides to run its own exchange, the S.C. Health Planning Committee would establish directors who could determine what kinds of policies should be offered, decide who is eligible, oversee federal subsidies to help the poor pay for insurance and more.
The committee, established through a March 10 executive order by Gov. Nikki Haley, is off to a slow start.
Progress reports filed to the federal government show that it has failed to meet a host of self-imposed deadlines for gathering demographic data, assessing online capabilities and planning the application process.
Most of the “milestone” deadlines outlined in the grant proposal came and went before Haley’s committee met for the first time April 14.
Timely completion of milestones is key to securing federal funding, according to the U.S. Department of Health and Human Services. “States will have to meet certain milestones in order to be awarded grants in 2011, and the size of state awards may be related to the number of milestones met,” the federal department’s website said.
In its application for the first federal grant, South Carolina officials wrote that “federal implementation grants appear to be the most plausible source of startup funding.”
Exchanges must be able to operate without federal assistance by 2015. Without federal funding, the state must find other ways to finance the exchange planning process, estimated to cost about $5.3 million in fiscal 2012, according to a committee progress report.
The next federal grant application deadline is June 30, but at least one Health Planning Committee member is unfazed. S.C. Department of Health and Human Services Director Tony Keck, who serves on the committee, said the state does not plan to apply for more funding.
Where will the money come from? Keck said the process might be privately funded, perhaps by fees on consumers or employers or from health insurers interested in exploring new industry models.
Gary Thibault, chairman of the committee and project manager for the federal grant, declined an interview request. He referred questions to a spokeswoman for the S.C. Department of Insurance, the state agency that originally applied for the grant.
After initial contact with the newspaper, spokeswoman Ann Roberson did not respond to a list of emailed questions.
Haley, through spokesman Rob Godfrey, also declined an interview request. Godfrey referred a list of questions, which included questions specifically for the governor, to Keck at Health and Human Services.
Conflict of interest?
Beyond funding, consumer advocates are troubled by the composition of the committee itself.
Blue Cross Blue Shield of South Carolina, the state’s biggest insurer by far, has a seat on the 12-member board.
And the son of one of the legislators who serves on it — Rep. Bill Sandifer, an Oconee Republican who himself has taken thousands of dollars in campaign contributions from Blue Cross Blue Shield — is a Blue Cross lobbyist in Columbia.
One seat on the board is reserved for consumers, and as of the Health Planning Committee’s first meeting last month, that seat had not been filled. A spokesman for Haley, who was supposed to pick the consumer position, said Thursday the seat still is vacant.
John Ruoff, an independent health care consultant and a former program director of S.C. Fair Share, said Blue Cross Blue Shield should be barred from membership on the board that ultimately oversees the exchange.
“We want the exchange to set up a competitive marketplace for consumers in South Carolina, which is something we do not have right now,” Ruoff said.
A report this month in The Post and Courier showed Blue Cross Blue Shield of South Carolina dominates the state’s insurance market, limiting competition and leaving its 1 million-plus South Carolina customers with few health care alternatives.
The insurance exchanges, designed to have strict standards to ensure adequate benefits and low premiums, are intended to promote competition by making it easy to compare insurance policies from different carriers.
Consumer advocates wonder how insurers on the board can be trusted to look out for consumers’ best interests when their eyes are fixed on their own bottom lines.
The newspaper’s report showed that Blue Cross Blue Shield, which generated hundreds of millions of dollars in profits over the past five years, boosted the pay of board members and top executives while charging policyholders ever-higher premiums.
It also showed that the insurer is sitting on excess capital reserves, money that consumer advocates said should have been returned to policyholders through rebates or lowered premiums.
“They weren’t acting honorably then, so why give them a seat at the table and expect them to act honorably now?” said Sue Berkowitz, who heads the Appleseed Legal Justice Center, a Columbia advocacy group for disadvantaged residents.
“If you’re benefiting financially from it, it’s a conflict of interest and you should be kept off,” she said.
Massachusetts and California have excluded insurance companies from serving on their exchange boards because of conflict-of-interest concerns.
Berkowitz and other watchdogs pointed to another potential conflict: Haley, whose executive order calls for the governor to pick “a licensed health issuer,” appointed Blue Cross Blue Shield to the committee.
The governor has received thousands of dollars in campaign contributions from Blue Cross Blue Shield of South Carolina and from its at least two of its top executives personally, according to public disclosures filed with the S.C. Ethics Commission.
S.C. Health and Human Services Director Keck, speaking on Haley’s behalf, dismissed all conflict-of-interest concerns.
Consumer advocates have been seriously concerned about the exchange debate since February.
That’s when lobbying by Blue Cross Blue Shield of South Carolina effectively squashed legislation that would have created a framework for a state exchange and prevented insurance carriers from serving on its board, according to legislators involved in the debate.
Rep. Harold Mitchell Jr., a Spartanburg Democrat, filed a bill he based on a national model in February.
“I figured we should get started because we have to have something ready by this time next year,” he said.
His bill quickly got bipartisan support, with about a dozen Republicans signing on as co-sponsors in the two weeks after it was filed. At the time, the bill included insurance company representatives on the board that would oversee the exchange.
When concerns arose about potential conflicts of interest, the bill was amended to forbid insurance company representatives from serving on it, relegating them to an advisory capacity, Mitchell said.
In March, members of the House Committee on Ways and Means, where the bill was being debated, “started getting heat from lobbyists,” he said, rattling off names, including former state Sen. Thomas Moore.
“All the big guns started coming in,” Mitchell said. “They know whoever establishes control of the exchange — it’s a lot of power, influence, control over the industry.”
Next, regional tea party groups began to threaten candidates, he said. The conflict is highlighted in an email exchange between Mitchell and state Rep. Nelson Hardwick, one of the bill’s Republican sponsors who later withdrew his support.
Hardwick, of Horry, told Mitchell he was being attacked by the Horry County Tea Party for supporting the bill.
“I thought you had broad bipartisan support,” Hardwick wrote in an email sent a week before he asked that his name be removed as a sponsor. “… What’s going on?”
Haley, who has said she would veto the bill, filed her executive order to establish the Health Planning Committee on March 10.
One by one, all 13 Republicans — nine of whom have taken campaign contributions from Blue Cross Blue Shield, according to public disclosures — withdrew their names as co-sponsors in the two weeks that followed.
The bill has not emerged from the Committee on Ways and Means, and the current legislative session ends next week.
Mitchell did not expect to have a finalized bill signed into law by the time the legislative session ends.
“We just hoped to get a shell through the House,” he said.
The governor’s Cabinet had the same objective, according to the Health Planning Committee’s progress reports. The grant application indicated that the state wanted to have “enabling legislation” ready by the end of March.
Despite political resistance to enacting the exchange, a more recent progress report pushed that deadline to Sept. 30.
Original article: http://www.postandcourier.com/article/20110523/PC1602/305239927