Consumer Reports Questions Blue Cross Surplus Fund

By Jon Lentz | July 22, 2010

Blue Cross Blue Shield’s nonprofit health plans raised insurance premiums even as they set aside millions of dollars in surpluses over the past decade, according to a report published Thursday.

For example, Blue Cross Blue Shield of Arizona policyholders faced double-digit rate increases in recent years while the company’s surplus grew to seven times the regulatory minimum.

The surpluses — mandated to ensure the payment of all medical claims — were built up partly to fund business expansion and new products, said the report from Consumers Union, the nonprofit watchdog and publisher of Consumer Reports.

“These are nonprofit companies,” said Sondra Roberto, a report co-author. “The priorities should be to provide affordable health care coverage to the greatest extent possible.

“And so if these other priorities such as product development or technology upgrades are competing with that function of providing affordable coverage, we want a light shined on that,” said Roberto.

The report recommended that states cap large surpluses or take them into account when deciding whether to approve rate increases.

Blue Cross, a nonprofit association of independent, locally-run insurance companies, had more than $32 billion in surplus in its plans in 2008, according to the report.

The association countered that the surpluses are necessary to cover all claims, including in emergencies, and as a source of capital, that is not otherwise available for a nonprofitcompany.

“To put these blunt caps, or bright line sort of rules on, that limits the flexibility of the company and really puts it at a greater risk of being unable to do the things it needs to do,” said Bob Kolodgy, the association’s chief financial officer.

Blue Cross said the recent healthcare overhaul law will extend coverage to millions of new individuals with unpredictable results.

“So when you look at requiring plans to lower those reserves at this time, we think it would be extremely dangerous given health reform’s going to require plans to have strong reserves going into this new era,” said Alissa Fox, a senior vice president at Blue Cross.

The report also comes as states consider a measure in the new healthcare law establishing how to deal with “unreasonable” rate increases. The legislation that became law in March leaves the process with the states, where most already approve or deny some rate increases.

States will still have the choice of whether and how strictly to judge rates, but the law offers grants encouraging them to bolster the review process.

In its report, the Consumers Union analyzed 10 Blue Cross insurance plans across the country over the past decade, finding that most had more than three times the amount of surplus that regulators say is sufficient to keep each plan solvent.

Report co-author Roberto said that since the early 2000s the health plans have faced little volatility in their business.

“So what we’re seeing is, you’re holding this surplus that’s designed to buffer you when these losses occur, but those losses haven’t been occurring,” she said.

The report focused on private insurance plans for individuals and small businesses, but the concern about excessive surpluses applies to group plans too, Roberto said.

(Reporting by Jon Lentz; Editing by Tim Dobbyn)

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