Regence is one of seven Blue Cross plans the consumer group accuses of hoarding a record surplus while drastically raising rates
July 29, 2010 -- Blue Cross Blue Shield insurance companies across the country have defended record surplus levels showcased in a Consumers Union report last week, and Regence Blue Cross Blue Shield of Oregon is no exception.
“It’s surprising that anyone in the wake of financial reforms would question the need for non-profit health plans to have the necessary funds to avoid a bailout,” said Angela Hult, spokeswoman for Regence. “While Consumers Union poses questions about reserves, it’s important to note that the group does not come to any definitive conclusions about the appropriate amount of reserves.”
That’s true, says Larry Kirsch, lead author of the report
, which draws a parallel between record surpluses and huge double-digit premium increases. Over the past decade, non-profit Blue Cross plans nationwide accrued $32 billion in surplus by the end of 2008.
“The point wasn’t to say what the right number should be,” said Kirsch, an economist and insurance watchdog who works in Portland. “The basic point we made was that at the same time these companies are holding in many cases historically high surpluses, they are still asking for big double digit rate increases. And does that make any sense?”
At the end of 2009, Regence had socked away $565.2 million, double what it had for reserves in 2001 and 3.6 times the regulatory minimum. At the same time, in 2009, Regence raised individual insurance rates
on average 25.3 percent and 16 percent in 2010. Kirsch is still involved in an ongoing legal fight against
a 26 percent average rate hike by Regence in 2008.
For its part, Regence reports that medical costs have increased 60 percent since 2006, and that it lost money on individual plans from 2006 to 2009. “Our rates did not cover the cost of providing services to our individual members, and the individual line of business did not generate any surplus,” Hult said. “In fact, the rate increases we filed were lower than what we needed to break even on this line of business.”
The Oregon Insurance Division defended its approval of Regence rate increases. Spokeswoman Cheryl Martinis said regulators would never want insurers to keep surpluses at the bare minimum.
“We would be asking a company at that level for its plan to increase its financial stability, and we would be monitoring the company’s every move,” she said. “We absolutely do not want a company at the minimum required level – a level that is barely above financial soundness.”
Regence isn’t alone is amassing a sufficient surplus. Kaiser Permanente maintains a surplus more than six times the regulatory minimum and Providence Health Plans 5.5 times, according to an analysis by The Lund Report of annual financial statements
Oregon regulators have been asking the question about appropriate surplus levels for years, Martinis said. But it wasn’t until April of this year that legislative-authority went into effect to even consider surplus when evaluating rate increases. While the state sets a minimum standard, there is no maximum, which few states do.
The issue of having an appropriate surplus should receive considerable scrutiny leading up to mandatory coverage in 2014. Without an effective way to keep premiums low and therefore insurance cost drivers – including surplus – plans for universal coverage will not succeed, experts predict.
Kirsch and the Consumers Union are pushing for the National Association of Insurance Commissioners to revisit the formula that regulators use to determine appropriate surplus. Under the formula, companies are assigned a minimum “risk-based capital” level or minimum surplus known as an “authorized control level” or RBC-ACL.
Regulators typically require insurers to maintain capital and surplus levels equal to 200 percent of RBC-ACL. The Blue Cross and Blue Shield Association requires that plans hold 350 percent, less than double the minimum.
Instead, Regence held 724 percent in surplus, which was 3.6 times the minimum while Blue Cross Blue Shield of Arizona held close to 1,500 percent in surplus, or 7 times the minimum.
Kirsch said the formula was derived in the 1990s when insurers experienced much more volatility and risk than they do today. Shifts toward more cost sharing with higher deductibles and co-payments have decreased the risk to insurers in recent years. In addition, insurers are much more diversified in investments than they were in the past, which also decreases overall risk, he said.
“Risks have changed,” Kirsch said. “So the report suggests there be a comprehensive review of risk-based capital, and the calculation of what’s needed for surplus and that it be initiated by the NAIC.”
To better evaluate rate increases and expand what insurers must report to state regulators, the Oregon Insurance Division recently applied for a $1 million federal grant
. Part of that money -- $100,000 – will go toward a consumer group that can provide expert commentary on proposed rate increases
. The Division is also hiring a new ombudsperson and applying for a grant of at least $120,000 to improve consumer assistance programs.
Sen. Chip Shields (D-North Portland) is working with several advocates to fulfill the Division’s desire for the grant.
“I hope the end result with be someone who will stand up for small business and people in the individual market who need a strong voice,” Shields said. “To the degree you can get them out of having it be the division against the insurers, it would be much better if they are just kind of the umpires in a baseball game.”
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