Health Insurers Hoarded Surplus While Raising Rates

Published: Thu 22 Jul 2010

Perry Begay

Non-for-profit Blue Cross and Blue Shield medical plans hoarded billions of dollars of surplus cash in the last decade, but persisted in hitting policyholders with double-digit rate increases, consumer advocacy group Consumers Union discovered in an analysis of ten of the plans' financials.

Health insurance companies have to keep surplus funds to ensure that they can afford customers' medical expenses if unforeseen marketing conditions arise. But seven of the health plans analyzed retained over three times the minimum amount regulators require, according to a report released today by Consumers Union, a non-profit group.

"Consumers are struggling to afford health coverage," explained Sondra Roberto, the author of the report. "Those funds could be used in some cases to mitigate these rate increases."

The report asks insurance regulators at the state level analyze surpluses when evaluating premium increases and establish maximum limits for surplus funds. In most states, the report claimed, regulators see an insurer as financially sound as long as it meets minimum surplus amounts only.

A senior vice president for the Blue Cross and Blue Shield Association, Alissa Fox, stated that now is a "dangerous" time for the government to cap the surpluses for medical plans because of the considerable uncertainty that exists about how health insurance expenses will change with the country's new health care reform law. "It's a safety net," she claimed.

Consumers Union chose to analyze the non-profit Blue Cross and Blue Shield health plans because they insure one in every three Americans with private health coverage.

Details of the Report

The Consumers Union report cites the following examples:

• Blue Cross Blue Shield of Arizona: In 2009, retained a surplus of $717.1 million, which is seven times the required minimum. The insurer hiked rates for individual-market policyholders in 2009 by as much as 18 percent. Regena Frieden, a spokesperson for the company, said: "We believe the amount we have in reserves is appropriate."
• Regency Blue Cross Blue Shield of Oregon: In 2009, kept a surplus of $565.2 million, roughly 3.6 times the minimum required by regulators. The plan increased rates on certain individual policies by an average of 25.3 percent in 2009 and 16 percent in 2010. Angela Hult, spokeswoman, claimed the company lost money on its individual health plans, and that the surplus funds are "essential to protecting our members from surges in claims costs."

Regulating surplus funds is a particularly challenging task because keeping insurers financially solvent is essential, regulators say. Each insurance plan has different needs and risks to its surplus depending on its policyholders.