Health insurers defend cash surpluses

OLYMPIA – In recent years, as health insurance premiums charged by the state’s largest health insurers rose steadily, something else continued to grow: how much money the insurers have in the bank.

By last year, according to reports filed with the state insurance commissioner, Premera Blue Cross was sitting on nearly $446 million more than it expects to ever pay out in claims. At Regence Blue Shield, it was $618 million extra. At Group Health Cooperative, $378 million.

State regulators already set a minimum amount of cash that insurers must have. But a maximum? In Washington, there’s no such thing.

Some consumer advocates say that it’s time to tap that extra cash to reduce premiums and help more of the state’s 600,000 uninsured get health insurance. Or the surplus money could simply be parceled out to policy holders.

“At what point do we say ‘That’s too much, you don’t need it’?” said Bill Daley, with Washington Citizen Action.

In response, Insurance Commissioner Mike Kreidler is considering a cap on excess surplus.

“The policy holders have been overcharged and should get a refund,” said Curtis Fackler, author of Initiative 346, a long-shot proposal to limit large insurers to a surplus worth two months of claims. At least one state lawmaker, he says, is also drafting a similar bill for the legislative session in January.

Kreidler seems sympathetic – or at least interested.

“Given today’s climate, where carriers are experiencing record profits yet health insurance premiums continue to rise faster than the rate of inflation,” he said this week, “we need to ask ‘how much is too much?’ ” He held a hearing on the issue Dec. 8 in the capital.

Several states have wrestled with this problem recently. Two – Michigan and Hawaii – decided to set a maximum surplus for insurers.

Insurers, not surprisingly, don’t want a government regulator telling them how much savings is too much.

In fact, it’s not an “excess surplus” at all, industry executives told Kreidler recently. It’s capital they need to stay competitive, expand, and be ready for health-care catastrophes like an avian flu epidemic, bioterrorist attack or earthquake.

“We’re forced to tell the future, with no guarantees,” said Nancy Ellison, a former state insurance regulator who now works for Regence Blue Shield.

“Excess surplus looks like a quick fix at a time when we’re all longing for a quick fix for our health system,” said Pam MacEwan, executive vice president of public affairs for Group Health Cooperative. But it isn’t, she said.

Health insurance companies are hardly the cash cow portrayed by critics, said Kent Marquardt, chief financial officer for Premera Blue Cross. Premera, he said, had an operating profit of just 2.2 percent of revenues last year.

Also, Washington’s three largest health insurers – Premera, Regence and Group Health – are all not-for-profit companies. So they can’t sell stock to raise cash. The surpluses that critics are targeting, they say, were carefully built over many years. (As Fackler notes, however, they also don’t face shareholder pressure to tap surplus cash for dividends.)

A company’s surplus, Marquardt said, should be determined by competitive pressures and the board of directors.

“Circumstances vary by company,” he said. “There is no right number.”