Caldwell: Rate hikes pit Kreidler against insurers

SUNDAY, DEC. 5, 2010

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.


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.

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