A healthy surplus (i.e., excess of assets over liabilities) gives health insurers and their customers the security of knowing they can pay the bills come what may, as well as make the investments necessary to optimize their business. However, with insurers across the board raising premiums by double-digit figures, it was only a matter of time before people started asking: Can a surplus be too big? And inevitably, do state regulators need to set surplus caps so that insurers can use the excess funds to promote rate stability and protect consumers from unnecessary rate increases?
The answer to both questions is pretty much a resounding yes, found How Much Is Too Much: Have Nonprofit Blue Cross Blue Shield Plans Amassed Excessive Amounts of Surplus?, a new report from the nonprofit Consumers Union, parent of Consumer Reports.
Nonprofit Blue Cross and Blue Shield (BCBS) health plans, which cover one in three Americans with private insurance, had an aggregate surplus topping $32 billion at year-end 2008 (per-plan average $897 million), according to the credit rating organization A.M. Best Company. To put that in perspective, Consumers Union studied 10 nonprofit BCBS plans, finding that seven of the 10 had more than three times the minimum requirements set by state regulators.
For example, Blue Cross Blue Shield of Arizona increased its surplus to $717.7 million at year-end 2009 (more than seven times the base requirement) from $648.3 million in 2007. At the same time, the insurer instituted a string of substantial rate increases for its individual-market customers: 14.5 percent to 19.4 percent in 2007, 13.1 percent to 15 percent in 2008, and 8.8 percent to 18.4 percent in 2009. Similarly, Blue Cross Blue Shield of North Carolina raised its surplus 4.5 times higher than the state minimum to $1.4 billion in 2009 amid rate increases on some individuals and families of 18.4 percent in 2008, 8.5 percent in 2009, and 12.2 percent in 2010.
Consumers Union recommends that state insurance commissioners begin setting surplus maximums in addition to minimums, as well as taking excess surplus into account when reviewing insurers' rate increase requests. However, Blue Cross and Blue Shield Association Senior Vice President Alissa Fox warned USA Today that limiting health plans' "safety net" when health reform is still in the process of being rolled out could be "dangerous." In addition, while some surpluses may seem excessive to casual observers, Blue Cross Blue Shield of Arizona's reserves actually amount to six months of expenses, spokeswoman Regena Frieden told the Washington Post. "Using reserves to buy-down premium increases would only serve as a temporary fix that would not address the underlying problem of rising healthcare costs," she added.