Pa. High Court Revives Suits on Non-Profit Insurers’ Surplus

December 4, 2006

Pennsylvania’s highest court has breathed new life into lawsuits that ask the state’s four nonprofit Blue Cross and Blue Shield insurers to use some of their cash surpluses to lower health-insurance premiums.

The Supreme Court acted last week on a five-year-old lawsuit against Philadelphia-based Independence Blue Cross, saying that a lower court must decide that suit and three others like it on the basis of whether the size of the surpluses violate state nonprofit law.

The lower Commonwealth Court had dismissed the suit against Independence Blue Cross in 2002 after it agreed with the insurer’s argument that the size of its surplus is the domain of state insurance regulators, not nonprofit law.

First, however, the Supreme Court said the Commonwealth Court should decide whether health insurance policyholders have standing to sue over the use of the surplus and to force insurers to open their books.

The suit against Independence Blue Cross was filed by Jules Ciamaichelo, a suburban Philadelphia appliance store owner. Similar lawsuits have been filed against the state’s other Blues insurers: Highmark, Capital Blue Cross and Blue Cross of Northeastern Pennsylvania.

The lawsuits allege that health-insurance premiums have skyrocketed while the Blues irresponsibly amassed surpluses far larger than required by the state.

Ciamaichelo is “a small businessman who has watched the costs of health care continue to escalate,” his lawyer Jonathan Auerbach said. “It’s a problem that’s of great public interest and affects every small businessman in the commonwealth who subscribes to the health plans covered by the Blues.”

Based on financial reports at the end of 2005, the four Blues insurers had combined surpluses of $5 billion, a sum of money that they say is necessary to ensure their solvency in an emergency. They also say they invest the surpluses and use the income to blunt rate increases.

In 2000, the insurers had combined surpluses of just over $3 billion.

In a statement, Independence Blue Cross called the court decision a “ruling on procedure, not on substance.”

After a lengthy inquiry that included holding public hearings, the state Insurance Department ruled last year that the surpluses were not excessive or inefficient. Two days before that decision, Gov. Ed Rendell announced that the Blues would contribute nearly $1 billion over six years toward the state’s low-cost health insurance program for low-income adults.

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