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December 5, 2010 in Business
Caldwell: Rate hikes pit Kreidler against insurers
Suppose the State of Washington had a six-month financial reserve, instead of a looming $385 million overdraft.
Suppose, too, that Gov. Chris Gregoire was to propose a 14 percent tax hike despite the fattened treasury. And the Legislature, after a mighty round of budget scrubbing, managed to cut the increase to 13 percent.
Wow, would the citizenry be grateful.
No? Well, this is not altogether different than the process Washington Insurance Commissioner Mike Kreidler finds himself in as he assesses health insurance company rate filings.
State lawmakers in 2008 gave Kreidler the power to determine whether proposed rate increases are justifiable. Before, the companies needed only to file their rate plans before implementing the increases. Always increases.
But the legislators did not give Kreidler authority to consider how much the insurers have in their vaults to backstop a surge in claims due, for example, to a pandemic or a natural catastrophe. They can, and have, accumulated a lot of money.
As of June 30, Group Health was sitting on $567.2 million, Premera on $861.3 million, and Regence on $939.6 million – a total $2.4 billion.
Expressed another way, the companies have on hand enough money to pay all claims for six months, nine months and nine months, respectively, if they stopped collecting premiums. The reserves have increased, except during the recession year of 2008, even as the number of plan subscribers has diminished.
The bill Kreidler wants considered by the Legislature would allow him to reject a rate increase if a health insurer is carrying more than three months of reserves – unless denial would threaten a company’s financial viability.
Without the ability to consider reserves, the commissioner can look only at the proposed premiums and compare them with projected claims. The companies pocket overages — you cannot call them profits because these are nonprofit organizations — or eat the shortfalls. There’s been a lot of pocketing, and little eating.
The most recent rate increase submitted to Kreidler by the 10 health plans sold in the state averaged 13.76 percent. With reserves off the table, he was able to hold the increases granted to 13.12 percent.
Pathetic.
And consider: If these were publicly owned, for-profit companies, what assessment would an analyst or investor make that did not take into account investment gains or losses? It would not happen.
Premera, for one, argues that risk-based capital – a yardstick recommended by the National Association of Insurance Commissioners – better measures an insurer’s soundness and should be used in setting rates. But soundness is a floor, not a ceiling, and by this benchmark as well the three companies are in very good shape.
In a separate proposal yet to be drafted into bill form, Kreidler also wants to be able to show the public what calculations and assumptions went into determining a rate decision. His office can do that now with property and casualty insurance, but state law forbids him to do that with health insurance, with the companies asserting that would compromise their trade secrets.
The prohibition frustrates the purpose of a $1 million grant the commissioner’s office received under the federal health care reform bill to finance creation of a computer tool to enhance citizen access to health insurance rate-making.
What people can see now are ever escalating insurance bills, driven by higher medical costs, yes, but also by company surpluses beyond the reach of the commissioner who needs more muscle.
Caldwell: West Point trained local bankers to survive 
DHF on December 05 at 6:44 a.m.
I must commend Mike Kreidler for wanting to reign in these insurance companies and there disgusiting profits. I have watched Medicare Part B and D increase substantially to where Part D increased by 2.5 times . It is no wonder that people cannot afford medical insurance. But oh yes Obamacare is going to make it all well . If you think the government will help you your nuts. All you will get from them is no JOB. and the Insurance Companies and there lobbyist will continue to stuff money into the politicians pockets to represent their interests. As a former nurse I am begining to think that Socialized Medicine might not be such a bad idea. At least Mike Kreidler is trying to help the people.
Albert on December 05 at 7:56 a.m.
We do not have health insurance because of the cost. Upon checking on rates for my wife and myself the monthly premium with Group Health was $1050. - that’s correct folks, for just 2 people. It was the same story with the above cited companies. Therefore “we” are among the “uninsured” in this nation because of the obscene rates. How can anyone justify granting these sharks even more money?
johnclarke on December 05 at 3:03 p.m.
Oh don’t you all know the poor Health Insurance companies are barely squeaking by and Obamacare (which oddly enough has not taken affect yet) is causing insurance companies to raise rates on everyone. Yes, Health Insurance companies have super low profit margins don’t you know ! Duh, they hide profits.
Such crap. They are laughing at us from their private jets.
fletch on December 05 at 8:25 p.m.
The money in the surplus belongs to the policyholders and is not the private piggy bank for the insurance companies executives. These are not for profit insurance companies. It is time they start managing the firms by the original purpose, cost effective insurance for their members.
mikeln on December 06 at 7:28 a.m.
In 1963 the government let the insurance industry skirt the laws you and I have to follow. They have become a racket, controled by organized crime and probably use these companies to launder money from drug and other illegal activities. This is the reason health care costs so much, yet some people think we should allow them to keep robbing us. They use terms like the free market and such when these companies are anything but that. We need to take control of our heath care and become self insured, remember, this is supposed to be a government of and for the people, all the people, not just the few who can afford to buy elected officials to make laws that make their robbing us legal.
carisa021 on December 06 at 9:56 a.m.
The billions of dollars in “reserve” are the reason the insurance industry lobby is the most powerful in the US. They should not be allowed to take our money and sit on it. It’s for HEALTH CARE, not PROFIT.
The Affordable Health Care Act requires insurers to spend at least 80% of revenue on actual health care…amazingly, companies are fighting that, too.
Thank you Mr. Insurance Commissioner for doing your job!
Providing access to affordable health care is a moral obligation, the US should be ashamed at how many citizens can only dream of seeing a doctor or dentist!
mikeln on December 06 at 1:13 p.m.
Like I have said before, anything that would help the consumer will be dropped from Obamacare. They will, however, make sure the mandatory part will stay, Ca-Ching!
SmileyPants on December 08 at 10:13 a.m.
Maybe instead of blaming the insurance companys you should all ask your doctor, the next time you have an appointment, why he’s charging $300 for a 15 minute office visit. Everyone is quick to blame the insurance companies, no one ever thinks about the fact that the reason they have to charge such high premiums is because our doctors have to make those big payments on their fancy houses and cars - even worse is when they tell you to have diagnostic testing done, whether you need it or not, because they need to keep all that expensive equipment (that they didn’t need) busy so they can make even more money. Even if only a very small percentage of the population actually NEEDS it. But since they’re not the big bad “corporation” - we all allow them to do this. We need to start looking over our medical bills - start calling the offices - start ASKING why they’re charging so much. Its the doctors making the unreasonably huge profit, not the NON-PROFIT insurance companies.