The financial health of Massachusetts health insurers is a hot topic as they battle with state regulators over proposed premium rate hikes. The verdict: Massachusetts insurers aren't doing too badly, according to the Study of the Reserves and Surpluses of Health Insurers in Massachusetts from the state Division of Health Care Finance and Policy. At year-end 2008, eight health insurers representing more than 90 percent of Massachusetts' private insurance market and most of its Medicare Advantage and Medigap market had a total statutory surplus (i.e., excess of assets over liabilities) of $2.6 billion over the state-mandated minimums--four times higher than 1999 surplus levels.
However, there are wide variations of surplus levels among individual insurers. Insurers included in the study are: Blue Cross and Blue Shield of Massachusetts Inc. (BCBS); Blue Cross Blue Shield of Massachusetts HMO Blue Inc. (HMO Blue or BCBS HMO Blue); Fallon Community Health Plan Inc.; Harvard Pilgrim Health Care Inc.; Health New England Inc.; Neighborhood Health Plan Inc.; Tufts Associated Health Maintenance Organization Inc.; and UnitedHealthcare of New England Inc. Two insurers--BCBS and HMO Blue--accounted for half of the total statutory surplus.
In addition, half of the insurers had a significant surplus decline in 2008, largely related to realized and unrealized losses in the value of equity-based investments. But even taking the 2008 slide into account, surplus increased "by a factor of at least three" over the past 10 years, say the report authors.
Insurers need adequate surplus to withstand unanticipated financial losses and to make investments such as improving information systems, acknowledge the authors. However, "the accumulation of surplus by insurers could also come at the expense of the affordability of health insurance." The risk-based capital (RBC) ratio, a standard tool for evaluating the adequacy of insurer surplus, "was much higher in 2008 than in 1999" for every insurer except BCBS.
The report recommends that the state: consider adopting upper RBC threshold review levels for health insurers analogous to the current RBC thresholds for minimum levels of surplus; consider establishing guidelines for the proportion of health plan surplus that may be invested in equity investments depending on the health plan's RBC ratio; enhance health insurer reporting by requiring that additional information in several key areas be included in health plan financial filings, including data on self-insured and administrative services-only business, administrative expenses, medical expenses and provider payment arrangements, focusing on arrangements that shift substantial financial risk to providers; require third-party administrators (TPAs) to be registered or licensed; not establish a health insurance guaranty fund in Massachusetts that would extend to HMOs and BCBS.