Health insurance industry has healthy reserves

Washington’s health insurance companies may have banked almost $2 billion in reserves yet continue to raise premiums.

Retired Spokane insurance consultant Curt Fackler says reserves far exceed what the companies need to cover claims, and wants the excess returned to policyholders. A bill that would require rebates, possibly in excess of $1 billion, has been submitted to the Washington Legislature.

A different bill drafted by State Insurance Commissioner Mike Kreidler also addresses surpluses, but only for individual policies that cover just 5 percent of Washington residents. And though his bill would give him the power to consider reserves when reviewing rates, he would not necessarily have to restrict premium increases or cap surpluses.

The insurance companies, in response to a $100,000 study of the reserve issue, dispute the notion of surplus altogether. The insurance industry has always been cyclical, they say, and reserves accumulated in recent years will be needed during a downturn, which according to one consultant has already begun.

Premera, the largest health insurance provider in Eastern Washington, says the study’s findings should be modified or shelved, and any effort to regulate surpluses set aside.

Insurance costs more, the company says, because health care costs more.

At the end of 2005, Premera reported more than $525 million in capital and surplus, second in the state only to the $717 million held by Regence Blue Shield. Group Health Cooperative held reserves of $439 million. Figures for 2006 are not due until March 1.

The bill Fackler helped draft would require rebates of $821 million from those carriers alone, with additional sums due from smaller insurers.

Fackler, who is also chairman of the Spokane County Republican Party, finds premium increases that pad surpluses especially offensive because the insurers pay millions in federal taxes on income they do not need.

“The bottom line is, they’ve got too much money,” he says, adding that the state cannot control what the insurers do with their bankroll.

Deputy Commissioner Steve Cutler says Kreidler is seeking a relatively modest expansion of his authority to regulate rates for individual health insurance as an experiment. Based on the experience in that market, small group insurance could be added, then all health insurance markets.

Cutler says the state must be cautious because an effort to limit surpluses might incline insurers to spend the money unwisely rather than agree to rebates. On the other hand, he says, there is a political danger in creating an expectation for rebates when the insurance cycle goes south.

“How do you draw the line so you don’t force under-reserving for what catastrophe comes down the line,” he asks, giving a bird flu pandemic as an example.

A hearing on the Fackler-drafted bill, HB1203, was conducted last month by the House Committee on Insurance, Financial Services & Consumer Protection.

Sponsor Maralyn Chase, D-Shoreline, said the nonprofit insurers should give a care to the burdens high premiums impose.

“It concerns me that the surplus reserves seem so large and growing, while my constituents were seeing double-digit increases in their premiums, and with every increase in premiums people were losing their insurance,” she said.

“There’s widespread agreement their reserves are too high,” committee Chairman Steve Kirby, D-Tacoma, said after the hearing. “Something that addresses this issue generally could pass the Legislature.”

But Kirby adds that he will be cautious, and may defer to the Health Care & Wellness Committee, which is handling Kreidler’s bill, HB 1234. Kreidler testified on behalf of his proposal last week, noting rates for individual health coverage have gone up an average 17 percent per year since 2000, when the commissioner lost authority to regulate premiums.

The expectation then was that more insurance companies would enter the market, and competition would control prices. It hasn’t happened, although Cutler says rate increases have moderated lately as the prospect of renewed oversight looms.

Capital does ebb and flow. Three years ago, Premera wanted to become a for-profit corporation because, officials argued, as a non-profit the company did not have access to enough capital to assure solvency and proceed with new capital investment. Kreidler rejected that proposal, but Premera is now swimming in capital.

It may be too soon to discuss rebates, but it’s past time to ask when is enough enough?