Republican state senators have blocked passage of a bill that could have restructured the Michigan individual health insurance system.

The bill, backed by Blue Cross Blue Shield of Michigan, Detroit, would have changed the rules that now give Michigan Blue tax breaks in exchange for it serving as an insurer of last resort for Michigan residents with health problems.

The bill would have given Michigan Blue more flexibility to set rates or required other health insurers to share financial responsibility for insuring state residents with health problems.

Michigan Blue says the current system is wrecking its finances.

Opponents contend that the company has been doing well and reporting big increases in overall surplus levels.

Both Michigan Blue and bill opponents said Republican lawmakers kept a House-Senate conference committee from approving a compromise version of the bill that both the House and the Senate could support.

“These few Republican senators have worked tirelessly to protect the interests of out-of-state, for-profit insurance companies,” says Andrew Hetzel, a Michigan Blue vice president, in a statement. “Their effort to derail reform leaves consumers without stronger regulations to protect them, leaves Blue Cross in a rapidly deteriorating financial position and is directly responsible for forcing the decisions we must now make as a company.”

Michigan Blue expects to lose $500 million on individual coverage over the next 2 years, Hetzel says.

“Losses this heavy cannot be sustained if Blue Cross is to fulfill our mission as Michigan’s health insurance safety net,” Hetzel says.

Michigan Blue now will have to make “hard business decisions” about its finances, Hetzel says.

The Michigan Association of Health Plans, Lansing, Mich., and other groups opposed to the bill are welcoming news that the bill appears to have died.

The bill “would have allowed the Blues to dramatically raise rates on the elderly and sick without permission from the state,” the groups say in a joint statement. “The bills could have resulted in an overall increase in Michigan health care costs of more than 23%.”

MAHP is committed to working with state leaders on “crafting meaningful health reform legislation early in 2009,” MAHP Executive Director Rick Murdock says.