Insurers argue surpluses are needed as new health-care laws take effect
By Getahn Ward
THE TENNESSEAN • and Alison Young
USA TODAY • July 22, 2010
Nonprofit BlueCross and BlueShield health plans in several states, including Tennessee, stockpiled billions of dollars during the past decade, yet continued to hit consumers with hefty premium increases that could have been reduced in some cases, a new consumer study contends.
"Consumers are struggling to afford health coverage," said report author Sondra Roberto, who tackled the project for Consumers Union, publisher of Consumer Reports. "Those funds could be used in some cases to mitigate these rate increases."
The report calls on state insurance regulators to scrutinize surpluses and set maximum limits to protect consumers from unreasonable health insurance costs.
But insurance regulators in Tennessee and BlueCross officials say rate increases here were justified, and keeping enough cash in reserve makes financial sense.
"On the day that financial reform legislation is signed in which many provisions are designed to create deeper reserves for financial institutions, it's ironic that we as health plans are being called out for having strong reserves," said Roy Vaughn, a BlueCross spokesman.
Chattanooga-based BlueCross BlueShield of Tennessee covers 3 million members with 87,000 of those in individual insurance plans. Many others have group coverage through their employers.
BlueCross BlueShield of Tennessee had $1.1 billion in surplus cash last year, an amount roughly five times what would be considered appropriate by regulators to protect insurers from insolvency, according to the Consumers Union study to be released today.
Tennessee's plan was among seven of the 10 states surveyed in which surpluses were more than three times the amounts needed, said Laurie Sobel, a senior staff attorney with Consumers Union. Arizona, Massachusetts, Michigan, Oregon, North Carolina and Wyoming also fell into that category.
Last year, individual policyholders in Tennessee saw average rate increases of 7.7 percent, although some people saw premiums go up by as much as 14.9 percent, Blue Cross officials said. In the group market, the average rate increase was 4.6 percent in 2009 after slightly higher average rate hikes the previous two years here.
Some policyholders, especially those with complex insurance needs, were hit with much steeper increases, though.
Earlier this year, Nashville resident Dr. Alan Bachrach faced a 26 percent increase in the cost of individual coverage for himself and two diabetic children under a policy from BlueCross BlueShield with relatively high per person and family deductibles. Instead, he opted for a BlueCross catastrophic policy that cost much less but permits just two doctors' visits a year, no brand-name drugs and no psychiatric care.
"When I got that increase, I just sensed that the goal in life of the insurance plans is to charge very high premiums, or they want to … get rid of people that are going to cost them a lot of money," said Bachrach, who has a pre-existing medical condition.
Alissa Fox, a senior vice president at the BlueCross Blue Shield Association, said this is a "dangerous" time for regulators to limit health plans' surpluses because there is so much uncertainty about how insurance costs will change under the new federal health law. "It's a safety net," she said of cash in reserve.
Some rates rose 20%
Consumers Union examined nonprofit BlueCross and Blue Shield plans because they cover one out of three Americans with private health coverage.
Among other examples cited in the Consumers Union report:
Blue Cross Blue Shield of Arizona had a $717.1 million surplus in 2009, more than seven times the regulatory minimum. The plan raised rates for individual market customers by as much as 18 percent in 2009. Company spokeswoman Regena Frieden said: "We believe the amount we have in reserves is appropriate."
Regence Blue Cross Blue Shield of Oregon showed 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 percent in 2009 and 16 percent in 2010. Company spokeswoman Angela Hult said the company lost money on its individual policies and said the surplus is "essential to protecting our members from surges in claims costs."
"The tough question is how much surplus is too much surplus. There is no agreement on that," said administrator Teresa Miller of the Oregon Insurance Division, which limited Regence's most recent request for a rate increase by taking the surplus into account.
Vaughn, a BlueCross spokesman in Tennessee, said if the insurer's obligation to guarantee reserves of its TennCare managed care plan had been included in the magazine's analysis, the amount of excess surplus cited by Consumers Union in its report would have been nearly one-quarter lower.
Also, Tennessee's state Department of Commerce and Insurance questioned some of Consumers Union's conclusions. On average, BlueCross sought a 4.5 percent rate increase this year but got an increase of 3.75 percent from the department, said Bob Ribe, chief analyst with the state agency.
Consumers Union analyzed data from 2001 to 2009 for most states it reviewed. Some rate increases were in double-digits for several of the health plans, it said, including more than 20 percent for some of the Texas plans.
Vaughn questioned the logic of using surpluses to reduce premium increases, suggesting that helping reduce costs one year might deplete reserves for future unforeseen events.
"That's a very immediate and short-term view," he said