Insurance companies saving surpluses even as premiums rise, study shows

WASHINGTON - Nonprofit health insurers may be setting aside unnecessarily large surpluses even as some of them continue to raise premiums, according to an analysis by a consumer rights group.

The report released Thursday by Consumers Union, the nonprofit publisher of Consumer Reports, found that seven of 10 Blue Cross Blue Shield affiliates examined had amassed surpluses more than three times the level regulators deemed necessary for them to remain solvent.

For instance at the close of 2009, Blue Cross Blue Shield of Arizona had a surplus of $717 billion, more than seven times the regulatory minimum. The same year the company raised premiums for its individual market customers between 8.8 percent and 18.4 percent.

Similarly, Regence Blue Shield of Oregon had about 3.6 times the regulatory minimum surplus, yet it raised rates on some individual policies an average of 25.3 percent in April 2009 and 16 percent in April of this year, the study found.

An insurance plan's surplus is essentially the revenue it raises from premiums and investments minus expenses such as the cost of paying medical claims. Companies must maintain enough surplus to protect them from unexpected expenses and losses. But how much surplus is too much is a matter of some debate.

While most states require plans to maintain a minimum level of surplus, only a handful, including Maryland, also monitor whether a nonprofit plan's surplus is "excessive" and if so, require the company to refund its customers.

For-profit plans are less likely to accumulate surpluses substantially above the required minimum because they have an incentive to give the money back to shareholders as profit, said Sondra Roberto, a staff attorney at Consumer Reports who co-wrote the report.

She worries that such profits may come at the expense of consumers. But Roberto said the prospect that nonprofit plans may be running unwarranted surpluses was even more troubling given their mandate as charitable organizations.

"They have a mission to provide the most affordable care they can," she said. "So to the extent that they are hoarding surpluses - they are undermining their mission."

Nonprofit plans also account for a major share of the market. One of three Americans with private coverage is insured by a nonprofit Blue Cross Blue Shield plan. (Blue Cross Blue Shield is an association that licenses nonprofit and for-profit plans that meet certain standards.)

Regena Frieden, a spokeswoman for Blue Cross Blue Shield Arizona, said that the plan's reserves are equal to six months of expenses and that "using reserves to buy-down premium increases would only serve as a temporary fix that would not address the underlying problem of rising health-care costs."

Angela Hult, a spokeswoman for Regence Blue Shield of Oregon, said that because of several years of losses on its individual line of business, subsequent rate increases on those plans were still not enough to make up the deficit and the nonprofit had to draw on its reserves to cover members' claims.

Both Hult and Frieden also said that their plans as nonprofits cannot raise additional funds through capital markets. Therefore, the surplus is needed to cover other expenses such as accreditation and new technological improvements required by law, they said.

Roberto agreed that it may be appropriate for a plan to use its surplus for such purposes. But she said states should require nonprofit plans to report any share of their surplus intended for uses other than maintaining solvency separately. That way, regulators can judge whether the benefits of those additional uses outweigh the substantial reduction in premiums the plans could offer consumers if they kept their surpluses closer to the regulatory minimum.

That approach may get a boost from the recently adopted health law. Though neither states nor the federal government have veto power over premiums, they will be charged with creating a process to annually review "unreasonable" rate increases. The law also offers grants for states to improve their methods for reviewing rates.