Washington’s big three health insurers continued a run of annual profits in 2007 and socked away another $266 million, swelling their surplus accounts to a combined $2.4 billion.
The surpluses are adding fuel to an ongoing political debate about how much money is appropriate for nonprofit insurers to retain when rising premiums are blamed for individuals and employers dropping their health insurance coverage.
Critics have called upon insurers to lower rates or pay refunds.
“This money should be refunded to the people who have been paying more and more each year in premiums,” said Brian McCulloch, who ran for state insurance commissioner in the 1990s.
The insurers, including Premera Blue Cross, Group Health Cooperative and Regence BlueShield, have said the surpluses are prudent – a necessary precaution to ensure the companies can withstand a financial catastrophe or pandemic.
The money also is a way for the insurers to hedge against the volatility of health care reform and the cost of medical advances and technology.
Insurers say hefty surpluses are a positive and that such sums are necessary to avoid risks.
Washington Insurance Commissioner Mike Kreidler wondered, however, if the insurers have reached a “degree of paranoia that can’t be justified.”
“At some point, enough is enough,” he said.
Kreidler suggested it was time for the insurers to begin a philanthropy campaign and lower rates or offer refunds to policyholders.
Premera, the dominant insurer in Eastern Washington, reported that its capital and surplus – which corporations refer to as retained earnings – reached $783.9 million at the end of 2007. The surplus at Regence was $924.9 million, and the surplus at Group Health hit $737.8 million. There’s no shortage of ideas by other groups about what the insurers should do with that money, including using the surplus to underwrite the cost of offering basic health insurance to the 600,000 uninsured state residents.
Some critics worry that the insurers will use the surpluses to pay for business activities that don’t fulfill their nonprofit mission of serving Washington policyholders.
They point to the controversy surrounding a Premera affiliate’s use of surplus funds – more than $49 million so far – to subsidize a for-profit health insurance venture called LifeWise Health Plan of Arizona.
Premera has contended that its Arizona initiative is a long-term investment that should be profitable within several years and benefit Washington customers.
Insurance has always been a cyclical business.
Health insurers sustained losses during the 1990s. A turnaround began in 2000, when the companies began to report modest earnings.
Regence says growth is slowing again and its surplus is only enough to cover five months of claims.
“We don’t have plans to spend the surplus,” said spokeswoman Anna Scarlett. “For Regence, the money is considered a rainy day fund so we don’t have the kinds of problems that sent several companies into receivership.”
Spokane insurance agent Curt Fackler, a critic of the surpluses and chairman of the Spokane Republican Party, says a reasonable surplus should equal about four months worth of claims.
“This matters because health care is the No. 1 issue right now, and it really comes down to the cost of insurance,” he said. “There’s no reason why the insurance companies keep raising rates by double digits every year when they have this massive surplus.”