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Editorial: Insurance companies’ reserves ripe for study

Sat., Jan. 14, 2012

Washington Insurance Commissioner Mike Kreidler has again put the $2.4 billion question to the Legislature: Why are health insurance companies allowed to sit on such extraordinary reserves while they continue to raise rates and the number of residents with no coverage increases to more than 1 million?

Outsized reserves give Washington’s three major health insurance companies powerful leverage against potential newcomers to the Washington insurance market, an issue that will become more important if health care reform survives the November elections.

Like all insurance companies, Premera Blue Cross, Regence Blue Shield and Group Health of Puget Sound need reserves – money set aside to pay claims, earning returns on investments in the meantime.

Reserves to cover two to three months of claims are considered sufficient.

How many months was one of the issues discussed during last year’s Senate hearing on SB 5247, which would have capped reserves at three months worth of claims. Group Health has 3.5 months worth, Premera 5.5 months, and Regence 5.9 months.

By one estimate, setting a limit at three months could trigger the return of $1 billion to Washington consumers.

Foes of the bill, primarily insurance industry spokesmen, argued they should be allowed reserves for the worst of circumstances: pandemics or natural catastrophes. Capping reserves would not allow for rising medical costs, the main driver of insurance premium increases, nor would it allow the companies to adequately prepare for implementation of the exchanges that will be a central component of the health insurance market envisioned by health care reform supporters.

They note, too, as does Kreidler, that they already pay out more than the minimum 80 cents out of every $1 in premiums the reform law mandates. In the case of Premera, it’s 86 cents.

But Premera also has the largest reserves – almost $1 billion, triple the level of a decade ago. Mind you, all three companies are nonprofits.

Kreidler says the version of SB 5247 that he will put before lawmakers this year will not set a ceiling on reserves; it will simply allow him to consider the level of reserves when deciding whether to allow rate increases. He says he would not use that authority to lower rates.

Eleven states have passed laws that make reserves a factor when their insurance regulators review premiums. In Oregon, among the latest to do so, Kreidler says the law has already restrained premium hikes.

Consumers Union in 2010 estimated Blue Cross and Blue Shield health insurance plans in the United States had $32 billion in reserves at the end of 2008. Its question: “How Much Is Too Much?”

Another good question: Whose money is it? When SB 5247 gets a hearing, Washington consumers deserve answers.