I am writing today to announce the closure of the New Mexico Independent. After three and a half years of operation in New Mexico, the board of the American Independent News Network, has decided to shift publication of its news…
While environmental activists played their part yesterday during demonstrations at the capitol building, going so far as to dress up as solar panels and to sing the tune of “You Are My Sunshine,” their counterparts, the anti-cap-and-trade contingency who has…
Roughly one quarter of University of New Mexico students are unimpressed with the state’s flagship public school, according to a survey that questioned college students about their higher education experiences.
Blue Cross and Blue Shield health insurance companies across the U.S. have raised policyholders’ rates while accumulating billions of dollars in surpluses – much more than necessary to protect the companies, according to a Consumers Union study released Thursday.
Blue Cross and Blue Shield of New Mexico’s parent company, Health Care Service Corporation (HCSC), increased its reserves from $4.3 billion in 2005 to $6.7 billion in 2009 while imposing double-digit rate hikes on individual-market policyholders who buy their own insurance in New Mexico, Texas and Illinois, study co-author Sondra Roberto told The Independent.
“HCSC’s $6.7 billion is the highest surplus I know of,” Roberto said. “It’s five times the amount regulators consider necessary for solvency protection.”
Although many Blue Cross Blue Shield programs are set up as nonprofit charities, HCSC is a mutual insurance company, meaning it is owned by its policyholders.
The nonprofit Blue Cross Blue Shield of Arizona raised rates on individual-market policyholders every year between 2007 and 2009, while its surplus grew from $648 million to $717 million, the study shows. In North Carolina, Blue Cross Blue Shield raised rates by a total of 39 percent between 2008 and 2010, even though its surplus was $1.4 billion by 2009 — more than four times the regulatory minimum.
Surpluses, also called reserves, are meant to protect insurers – and policyholders – against unexpected losses, and to ensure all claims can be paid. State regulators impose minimum reserve requirements to avoid insurer bankruptcies, based on insurers’ finances, risks and histories.
But surpluses held by Blue Cross Blue Shield plans across the U.S. far exceed those minimums, Roberto said.
And only a handful of states limit how much surplus insurers can accumulate.
“Solvency is an important factor,” Sen. DeDe Feldman told The Independent Thursday in an e-mail. “No one wants companies to go belly up and be unable to pay claims for medical expenses. That is why a minimum (but not a maximum) reserve has been required in the past.”
Blue Cross Blue Shield New Mexico’s controversial 21.3 percent rate hike, approved in April by former insurance superintendent Morris “Mo” Chavez, and suspended by acting superintendent Johnny Montoya last month, included a 5 percent fee for policyholder contributions to company reserves, state Insurance Division records show.
Next week, the state Supreme Court is expected to hear the company’s petition to reverse Montoya’s decision.
“When people are struggling to pay increased premiums and to keep their coverage, that’s not the time to increase already sizable reserves,” Public Regulation Commission (PRC) Commissioner Jason Marks said Wednesday. “It’s hard to imaging why they’d want to increase reserves (now). The timing doesn’t make sense. This is a time to do what is possible to moderate rates.”
The PRC oversees the semi-autonomous state Insurance Division.
‘Surpluses are not profits’
The Consumers Union study unfairly depicts reserves that serve to protect solvency as profits, Blue Cross and Blue Shield of New Mexico spokeswoman Becky Kenny said in an e-mail Wednesday.
“The (Consumers Union report) does not accurately depict the necessity of, or customer protection provided by, health insurance financial reserves,” Kenny wrote. ”Although sometimes called ‘surplus’ for accounting purposes, reserves are by no means extra cash or ‘profits’ that can be used for any purpose a company chooses. To the contrary, reserves are funds specifically set aside to cover risks and obligations for our member-owners.”
HCSC’s reserves come to just $500 for each of its 12.4 million members, Kenny estimated. That would be enough to cover all claims and expenses for 70 days without policyholder payments, she said.
“Reserves protect that coverage, which is especially critical in the current economy and in an untested health care reform environment,” Kenny said. “In addition, as a customer-owned health insurer, HCSC can’t access the capital markets on Wall Street like our for-profit competitors should we need capital to cover our customers’ needs.”
But the real measure of whether surpluses are sufficient is not the number of days they could cover a company’s total costs, Roberto said.
“The measure of sufficient surplus for solvency protection should be one that looks at the real potential risks that a company faces,” she said.
“We are not suggesting that HCSC ‘deplete’ its surplus or that rising medical costs are not a factor behind rate increases. Yet we need to take a hard look at whether some financially strong insurers like HCSC can be doing more to moderate these large increases. HCSC describes itself as the most financially secure health insurer in the U.S. Its customers, particularly those who buy without the help of an employer, should get the benefit of that financial strength in the form of more competitive prices for health insurance.”
Some states limit insurer surpluses
In Rhode Island, insurance regulators have denied Blue Cross Blue Shield requests for policyholder contributions to a surplus of 2.5 percent — half the 5 percent New Mexico regulators approved for Blue Cross Blue Shield New Mexico, whose parent company has much larger reserves. (HCSC runs Blue Cross Blue Shield plans in New Mexico, Texas, Oklahoma and Illinois, and is a different company than Blue Cross Blue Shield of Rhode Island.)
In both Rhode Island and Maine, insurance commissioners have denied surpluses as unjustified because insurers’ surpluses were sufficient to protect the company and would impose hardships on policyholders.
The new federal health reform law will require all Americans to have health insurance by 2014 but does not impose cost controls on health insurers.
It will fall mainly to state regulators to control increasing insurance rates, Roberto said.
One way to do that is to limit how much insurers charge policyholders to build reserves beyond what is necessary to protect the company, Roberto suggested.
That could happen in the next legislative session, suggested Sen. Dede Feldman.
“I support a requirement that the Insurance Division must consider profitability, and surplus/reserves across lines of business in making a determination as to whether a rate increase is ‘unreasonable’,” Feldman wrote in an e-mail Thursday. “Other factors which should be included in the review include investment income on the surplus, a more precise breakdown of medical expenses, including provider payments, and claims history.”
A few states, including Pennsylvania and Maryland, have limited surpluses already, preventing companies from charging customers for surplus contributions when reserves are deemed adequate to protect a company.
New Mexico should empower its insurance superintendent to do the same, Roberto said.
Big, stable insurance companies need the same scrutiny as small, unstable ones
The state Insurance Division already has the authority to do that, Marks said Wednesday – but he’s not convinced capping surpluses would be the best approach to protecting consumers.
Marks, who had not yet read the CU study, said “Our code would benefit from an update but we’ve the tools in the interim to protect consumers. … Our insurance statutes are based on the assumption we have to look out for under-capitalization and fraudulent marketing but in the past year or two it has become apparent the big, dominant players’ premiums really need the same or more scrutiny we’ve given more questionable outfits in the past.”
Feldman and Marks also pointed out that the state’s current system puts the burden of proof on Insurance Division regulators.
Regulators have to prove a rate increase is unreasonable, Marks explained.
“Maybe we should reverse the burden of proof,” Marks said. “If reserves offer no value to customers in terms of claims paid and stability of the company, there’s not value in it.”
Marks wouldn’t be opposed to a cap on surpluses, he said. But caps wouldn’t be his first solution to unreasonable rates. Giving the PRC more control over the insurance superintendent, who can currently be fired only “for cause,” and allowing the Commission to hear policyholder appeals in rate hike cases would go further in protecting consumers, Marks said.
Limiting how much surplus insurers can accumulate would put them and their policyholders at risk, Kenny said.
“Premiums are a direct result of medical costs, which continue to rise,” Kenny said. “Even if reserves were depleted to impact current premium cost, premiums would still need to be adjusted to cover ever-increasing medical costs. In that scenario, however, there would be no safety net for consumers to cover their medical costs in the case of an emergency or some other unforeseen event.”
The National Association of Insurance Commissioners did not respond to a request for comment.
