A new report from Consumers Union charges nonprofit Blue Cross and Blue Shield plans with setting aside billions of dollars in surplus over the past decade while raising rates as much as 20 percent a year.
"How Much is Too Much," from the nonprofit publisher of Consumer Reports magazine, urges state insurance commissioners to look at the surpluses collected by nonprofit BCBS health plans and crack down on skyrocketing rate increases, said Sondra Roberto, staff attorney for Consumers Union.
Surplus is defined as the excess of an insurance company's assets over liabilities, which plans hold to protect the company and its members from financial losses. Nonprofit BCBS plans, including community-owned charitable plans and subscriber-owned mutual plans, held more than $32 billion in surplus at the end of 2008, according to A.M. Best.
"These Blue plans hit consumers with big premium hikes while they've built up enormous surpluses," Roberto said. "These rate hikes could have been reduced or avoided if companies applied just a portion of their surplus to rate stability, while leaving sufficient funds for solvency protection."
Consumers Union officials say they reviewed 10 diverse nonprofit BCBS plans and found that seven held more than three times the amount of surplus that regulators consider to be the minimum amount needed for solvency protection.
According to officials, these surplus funds are built primarily with consumers' premium dollars, and insurers typically include a targeted contribution to surplus in rate increases. Surplus can be used to moderate premium increases, yet the Consumers Union report found that some financially strong BCBS plans with large surpluses have continued to seek double-digit rate increases.
For example, the study said Blue Cross Blue Shield of Arizona raised rates for its individual market customers between 14.5 percent and 19.4 percent in 2007, 13.1 percent and 15 percent in 2008 and 8.8 percent and 18.4 percent in 2009. During that time, the report charged, the company's surplus grew from $648.3 million to $717.1 million, more than seven times the amount that regulators consider to be the minimum necessary for solvency protection.
Consumers Union is recommending state insurance commissioners examine these surpluses, develop appropriate ranges for minimum and maximum surpluses and deny or reduce rate increases, particularly on individual market plans, when the company has more surplus than is necessary for solvency protection.
The report notes that a few states have started to reject rate increases on the grounds that previously accumulated surpluses were sufficient to absorb any potential underwriting losses and that it is appropriate to balance profit expectations against the financial hardship the increase would impose on policyholders.
The BCBS plans studied in the report are Blue Cross Blue Shield plans in Alabama, Arizona, Massachusetts, Michigan, Tennessee, North Carolina and Wyoming, along with Excellus Blue Cross Blue Shield in New York, Regence Blue Cross Blue Shield of Oregon and Blue Cross of Northeastern Pennsylvania,