Insurance Companies Playing Games?

An insured in Dallas, Fort Worth, Grand Prairie, Arlington, Colleyville, Burleson, Benbrook, Grapevine, Irving, or anywhere else in Texas probably thinks they pay too much in health insurance rates. Well, the reality is they probably are paying too much.
The above is addressed in a USA Today article published on July 22, 2010. The author is Alison Young and the title of the article is, “Consumer group: Insurers kept surplus while hiking premiums.” The article focused on Blue Cross and Blue Shield health plans because the company covers one in three Americans with private insurance.
The article tells us that non-profit Blue Cross and Blue Shield health plans stockpiled billions of dollars during the past decade, yet continued to hit consumers with double digit premium increases. This was discovered by Consumers Union in an anaylsis of 10 of the plans’ finances.
Probably most people know that insurance companies must keep surplus money to ensure they can pay policyholders’ medical bills if unexpected market conditions develop. In the research by Consumers Union it was discovered that seven of the plans examined held more than three times the amount regulators consider the minimum to do the above.
The author of the report, Sondra Roberto, said, “Consumers are struggling to afford health coverage. Those funds could be used in some cases to mitigate these rate increases.”
The Consumers Union report calls on state regulators to scrutinize surpluses when considering rate increases and set maximum limits for surpluses. In most states, it said, regulators focus only on ensuring companies have minimum surpluses to be financially sound.
Blue Cross and Blue Shield Association senior vice president, Alissa Fox, has said this is a “dangerous” time for regulators to limit health plans’ surpluses because of great uncertainty about how insurance costs will change under the nation’s new health law. She said, “It’s a safety net.”
Here are some examples from the report and the Alisa Young article:
Blue Cross Blue Shield of Arizona: A $717.1 million surplus in 2009, seven times the regulatory minimum. The plan raised rates for individual market constomers by as much as 18% in 2009. Their company spokeswoman, Regena Frieden, said, “We believe the amount we have in reserves is appropriate.”
Regence Blue Cross Blue Shield of Oregon: A surplus of $565.2 million in 2009, about 3.6 times the regulatory minimum. The plan raised rates on some individual plans an average of 25.3% in 2009 and 16% in 2010. Spokeswoman, Angela Hult, said the company lost money on its individual policies and that the surplus is “essential to protecting our members from surges in claims costs.”
Regulating surpluses is a difficult balancing act because keeping plans financially sound is critical, regulators said. Each plan has different surplus risks and needs depending on its members.
Oregon Insurance Division administrator Teresa Miller, whose office considered Regence’s surplus and limited its request for a higher 2010 rate hike, said: “The tough question is how much surplus is too much surplus. There is no agreement on that.”
The Oregon legislature last year gave state regulators the explicit authority to consider a company’s surplus when it reviews rates – a tool Miller said her agency had sought since 2007. A report on the agency’s website charts how surplus levels have risen since 2001.
In Michigan, a law caps the surplus of the state’s Blue Cross Blue Shield plan at five times the regulatory minimum. Insurance Commissioner Ken Ross said the state’s Legislature wanted to give the insurer flexibility but also protect consumers against the possibility the plan could hold too much money in its surplus funds. Blue Cross Blue Shield of Michigan has rarely neared the limit and usually is about halfway between the minimum and the maximum. “It seems to have worked relatively well,” Ross said.
The company insurers more than half of the people in Michigan, Ross said, so it’s critical it have enough capital to remain financially sound. “Their health in many ways goes to the entire health care system in Michigan.” he said.