Idaho health insurers pile up surpluses

Hundreds of millions of dollars in reserve protect them from rising costs and the unknown, the companies say.

adutton@idahostatesman.comMarch 3, 2013 

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Idaho's two major health insurance companies are using money from double-digit rate increases to build savings and investment accounts that now top $600 million.

Similarly rising stockpiles among insurers doing business in Washington have raised concerns by its insurance commissioner that the surpluses are more than the companies need. He wants legislation to let him consider the size of the stockpiles when he sets rates.

Oregon's insurance regulator already has that authority and has used it to reduce rate increases.

But no one appears to be making such an argument in the Gem State. Blue Cross of Idaho and Regence BlueShield of Idaho say the savings and investments aren't a valid reason to charge their members less. They say the surpluses will protect them, and their members, in the event of a surprise wave of claims or a surge in medical prices, and in the face of a grab bag of unknowns coming with national health care reform.

"In the risk business, surplus is the key to survival - and consumer protection," Regence's sister company in Washington said.

Blue Cross of Idaho had about a $485 million surplus at the end of 2012, up 84 percent since 2008. The company reported $1.23 billion in revenue in 2011, the latest year for which data are available.

Regence BlueShield's surplus totaled $146 million in 2012, up 35 percent from 2008. Its 2011 revenue was $466 million.

A SECRET FORMULA FOR RESERVES

Idaho's Department of Insurance is like most in the U.S., requiring health insurers to keep a minimum of money set aside - an amount that's calculated using a secret formula. That amount is intended to tell regulators that the company isn't going broke.

The Blue Cross Blue Shield Association wants its 38 member companies, which include Blue Cross of Idaho and Regence, to keep almost twice the legal minimum. Blue Cross now has about five times as much and Regence BlueShield about four times as much.

A large surplus means "the financial solvency of a company is more protected, though defining 'large' surplus is not really easy," said Tom Donovan, deputy director of the Idaho Department of Insurance, in an email. "It depends on the nature of the business, risks insured, investment risk, credit risk, reinsurance arrangements, etc. If one were to say there was a con to a 'large' surplus, it might be that premiums were 'too high.' "

IDAHO IN CONTEXT

The state can't tell an insurance company that its premiums are too high because it's socking away a certain amount of that premium toward its surplus. There is no "too much" surplus under the law.

The Affordable Care Act sets a 20 percent cap on how much premium money a company may use for its own purposes, including salaries and surplus. Blue Cross of Idaho and Regence BlueShield have been well under the 20 percent limit in the past.

The insurance chiefs of Idaho's neighboring states to the west are either fighting to get or already have the power to look at surpluses in deciding whether rates are fair.

In Washington, Regence BlueShield's surplus is about $1.05 billion, according to the insurance commissioner. Premera Blue Cross' surplus is about $1.15 billion.

"Insurance companies aren't supposed to have a loss," said Rich Roesler, a spokesman for Washington Insurance Commissioner Mike Kreidler. "But once you hit a billion dollars, that's pretty hard to justify. You've got families out there struggling to pay premiums (and) rates going up far exceeding the inflation rate. ... It's hard to square the fact that premiums have gone up and up and up, while surpluses go up and up and up."

The health care reform law also gives Idaho and other states an ability to say whether double-digit rate increases are reasonable. Both of Idaho's nonprofit insurers and a few out-of-state companies, including Oregon's PacificSource, filed rate increases last year that ranged from 10 percent to 26 percent.

Without considering surpluses, Idaho's regulators ruled that most of the rate hikes were fair. The regulators looked mainly at how much Idahoans were costing insurers in hospitalizations, prescription drugs and visits to the doctor. The state decided insurers were right to ask members to pay more when they were using more, and costlier, services.

INSURERS: WE NEED MORE

Nearly one in five Idahoans lacks insurance, in many cases because they can't afford a health plan. One goal of national health care reform is to get everyone insured. Another is to keep insurers from jacking up prices for sick people.

These changes mean a larger surplus is needed to cover more members who likely have more health risks, according to insurance spokespeople.

"To help put it into context, our 2011 capital reserve level was approximately $860 per member for the year," said Georganne Benjamin, a spokeswoman for Regence BlueShield of Idaho's parent company, Cambia Health Solutions. "When you compare that number against the fact that one ambulance ride in Idaho costs anywhere from $700 to $1,000, depending on which part of the state you are in, the current capital reserves amount for Regence BlueShield of Idaho can quickly be depleted should an unanticipated health event occur."

Blue Cross set aside about $91 million of what members paid in premiums in the past four years for its surplus. The average member has been contributing $56 a year to the surplus, said spokeswoman Karen Early.

The surplus also benefited from $94 million in good investments and $35 million in a 2009 tax credit.

Early said Blue Cross of Idaho made just one-third or one-half of the margin that for-profit insurers such as Humana, Aetna, United and Cigna made in 2011.

The company has a duty to the people it covers to be ready for medical costs to grow each year - and for more members to use more services, she said.

"When you go back 10 years, things didn't look so good," Early said. "You have to plan through good periods to get through bad periods."

Roesler, the Washington spokesman, doesn't think that's a fair argument.

"If claims are going up and that's the reason they need surplus - well, frankly, that's why you have rates," he said.

Insurance companies also routinely carry "reinsurance" policies to protect them from paralyzing losses on huge claims. Because the health care reform law makes it illegal for insurers to put lifetime caps on medical claims, Blue Cross of Idaho now carries insurance that kicks in at $2 million in claims. The company had 14 people with claims exceeding $1 million last year, Early said.

Having enough money, but not too much, is a balancing act, insurers say. The companies aren't out to stockpile cash at the expense of their members, Regence's Benjamin said. That would be self-destructive.

"We're not going to increase rates (without) concern for our reserve levels," Benjamin said. At the same time, she said, "Increasing rates is a very critical concern of ours, because you can't keep increasing rates if people can't afford it."

Audrey Dutton: 377-6448, Twitter: @IDS_Audrey

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