Michigan Blue Cross Wins Battle Over Workers’ Compensation Business

February 4, 2009

Michigan Attorney General Mike Cox is not giving up in his battle and will appeal a judge’s ruling in support of Blue Cross Blue Shield of Michigan’s ownership of workers’ compensation insurance businesses.

Cox maintains that the workers’ compensation carrier Accident Fund, a Blue Cross subsidiary, illegally shifted money when it acquired CompWest Insurance Co. of California in 2007.

However Ingham County Circuit Judge Paula Manderfield recently dismissed Cox’s complaint. It was the latest setback for Cox over the dispute; three counts he has lodged in the case have been dismssed.

But Cox has now filed an appeal with the Michigan Court of Appeals.

Blue Cross officials welcomed the circuit court ruling, claiming it validates Accident Fund’s ability to own and operate subsidiary workers’ compensation insurance companies and paves the way for Accident Fund to continue to grow its national business, which the insurer said will bring jobs and economic growth to Michigan, its home base.

“It confirms the legality of Accident Fund’s ownership of subsidiaries and effectively ends the lawsuit by Attorney General Cox against the Blues,” said Lisa DeMoss, BCBSM senior vice president and general counsel.

Cox has now struck out on three pitches challenging the workers compensation business of Blue Cross. A count alleging violations of BCBSM’s original 1994 purchase agreement governing the sale of Accident Fund by the state to BCBSM was dismissed by the court on Oct. 6. Another count, which questioned a capital transfer from BCBSM to Accident Fund was dismissed and remanded to the state insurance commissioner, a move requested by BCBSM. Now the court has dismissed the remaining count, confirming the legality of the Accident Fund’s ownership of subsidiary companies.

In her ruling, Judge Manderfield stated that the statute did not bar Accident Fund from owning or controlling insurance companies and did not prevent Blue Cross from indirectly purchasing or owning insurance companies. She wrote in her ruling that “this decision resolves the last pending claim and closes this case.”

“Accident Fund couldn’t be more pleased with the court’s ruling,” said Liz Haar, president and CEO of Accident Fund. “The court’s affirmation of our ability to own subsidiaries allows us to continue our national expansion, providing superior service for employers and compassionate care for their employees.”

Last July, Cox sued Blue Cross over issues that arose in the Michigan State Senate Health Policy Committee in April, 2008. His three count lawsuit charged BCBSM with violating the terms of Public Act 350 of 1980, improper contributions to an insurance company, and breaching the terms of the purchase agreement that enabled BCBSM to acquire the Accident Fund.

“Michigan law is clear. It prohibits Blue Cross from purchasing CompWest Insurance Co.. and the law prohibits Blue Cross from using subscriber funds ‘to operate or subsidize in any way’ the Accident Fund, unless it is a loan that’s paid back in full,” Cox said at the time. “Subscriber funds were used so Blue Cross could purchase a for-profit company. And consumers, the sick and the elderly have paid higher premiums because funds that could have been used to lower their costs were diverted for this purchase.”

Cox said his investigation showed that BCBSM transferred $125 million to the Accident Fund in November, 2007. The Accident Fund purchased CompWest Insurance Co. for $127 million in November, 2007.

“Michigan law prohibits Blue Cross from purchasing a for-profit workers’ compensation company other than the Accident Fund,” Cox argued. “And if Blue Cross does transfer subscriber money to the Accident Fund, it must be in the form of a loan, not a gift that is never repaid.”

Cox had asked the court to force BCBSM to divest itself of CompWest. Alternatively, Cox asked the court to force BCBSM to recover the $125 million of subscriber funds it transferred to the Accident Fund in November, 2007.

BCBSM is the state’s largest health insurer. The Accident Fund is the state’s largest voluntary market workers’ compensation carrier.

Topics Carriers Workers' Compensation Talent Michigan

Was this article valuable?

Here are more articles you may enjoy.