On Dec. 6, 2012, the Michigan Legislature effectively rewrote the three-decade-old law that designated Blue Cross Blue Shield of Michigan as a tax-exempt, nonprofit “insurer of last resort” (Senate Bills 1293 and 1294). Now that the federal Patient Protection and Affordable Care Act has made such insurers unnecessary, BCBSM has the opportunity to convert to a nonprofit mutual insurer that benefits from a streamlined rate review and approval process.

As a condition of permitting BCBSM to operate more like other insurers, the Legislature created the Michigan Health Endowment Fund and required BCBSM to finance it. Experience with similar funds in other states suggests that unless the statute is soon revised, the Health Endowment Fund will spend much of its money on unproductive projects of dubious benefit to the residents of Michigan.

As a condition of its conversion, BCBSM is required to pay up to $1.56 billion to the Michigan Health Endowment Fund over 18 years. In order to afford this, BCBSM will have to charge more for health insurance. Given that federal law requires people to purchase expensive federally defined health insurance beginning in 2014, state officials should avoid making coverage more costly. In 2011, BCBSM reported net income of $40 million and underwriting losses of $48.8 million.

From 2016 through 2021, the health endowment fund must spend $120 million on subsidies for means-tested supplemental Medicare insurance policies purchased by “senior citizens in this state,” a transfer payment from younger policy holders to older Medicare recipients. The statutory language controlling other endowment spending requires the endowment to fund programs on infant mortality, access to healthy food, foodborne illness prevention, wellness, fitness, technology enhancements and “health-related transportation needs.”

It is unlikely that more spending in these areas will improve health. Michigan already has a private sector dedicated to producing technology enhancements that people want to buy, a wide variety of food retailers devoted to selling wholesome food, and thousands of publications and establishments devoted to providing wellness and fitness advice. Moreover, official data suggest that obesity rates rose fastest from 1976 to 1980 and from 1988 to 1994, at the same time that Americans were voluntarily complying with recommendations to reduce dietary fat. American obesity rates plateaued in 2003. Despite increased spending at all levels of government, U.S. infant mortality rates, already among the lowest in the world when properly categorized by birth weight, have remained roughly constant since 2000. U.S. foodborne disease rates have fallen over the last decade. In 2011, the latest full year of data available, Michigan had far more reported cases of sexually transmitted disease, 62,713, than of foodborne illness, 3,713.

If the experience in other states is any guide, the endowment will spend to support programs rather than people, with a special emphasis on programs promoting expansions in state spending. In Colorado, the Caring for Colorado foundation was created in 1999 when the Colorado Blue Cross Blue Shield affiliate was privatized. Caring for Colorado supports hospitals and clinics run by state and local governments, funds federally qualified health centers favoring virtually unlimited Medicaid expansion, gives money directly to government entities and donates to programs at state colleges and universities. Its tax forms state that its board members are often associated with potential grantees as either paid staff or board members of other nonprofits.

To fund people rather than programs, legislators should consider rebating the health endowment’s funding directly to taxpayers. Failing that, the Legislature might direct the endowment to provide direct aid to young people, families and other individuals who fall through the cracks in existing programs and need assistance in meeting the financial demands of overwhelming health problems. Finally, they might limit endowment funding to people or organizations that provide direct personal services to the medically indigent.

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