Nonprofit BCBS plans for surpluses, sought huge rate increases

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In the past decade, nonprofit Blue Cross and Blue Shield (BCBS) plans set aside billions of dollars in surplus--essentially retained profits--even as they raised premiums for consumers by as high as 20 percent annually, according to a report by Consumers Union.

“Nonprofit BCBS plans, including community-owned charitable plans and subscriber-owned mutual plans, held more than $32 billion in surplus at the end of 2008,” the report stated.

Consumers Union, an independent testing and information organization based in Yonkers, N.Y., reviewed 10 nonprofit BCBS plans and found that seven of them held more than three times the amount of surplus that regulators consider to be the minimum amount needed for solvency protection.

These surplus funds are built primarily with consumers’ premium dollars, and insurers typically include a targeted contribution to surplus in rate increases, the report stated. Surpluses can be used to ameliorate premium increases, yet some financially strong BCBS plans with large surpluses continued to seek double-digit rate increases, Consumers Union found.

Blue Cross Blue Shield of Arizona raised rates for its individual market customers between 14.5 percent and 19.4 percent in 2007, 13.1 percent and 15 percent in 2008, and 8.8 percent to 18.4 percent in 2009, the report found. During that time, the company’s surplus grew from $648.3 million to $717.1 million.

Healthcare Service Corporation (HCSC), doing business as Blue Cross Blue Shield of Texas, Illinois, New Mexico and Oklahoma, raised rates in Texas on some individual and family plans multiple times in a year between 2007-2010. In Illinois, the company filed for rate increases of 10.2 percent in 2007, 18 percent in 2008, and 8.4 percent in 2009 for some customers. In New Mexico, some customers have faced annual increases of more than 20 percent since 2007.

At the time of these increases, HCSC’s surplus grew from $6.1 billion in 2007 to $6.7 billion in 2009, up from $4.3 billion just four years earlier in 2005.

The report recommended state insurance commissioners examine these surpluses, develop appropriate ranges for minimum and maximum surplus and disapprove or reduce rate increases, particularly on individual market plans, when the company has more surplus than is necessary for solvency protection.

According to the report, companies found to hold excess surplus should:

  • Set up a "rate stabilization fund" designed to moderate premium increases going forward;
  • Refund policyholders the amount that they “overpaid” in premiums that contributed to the excessive surplus; or
  • Spend the money for charitable purposes like community health programs or affordable coverage initiatives.

“This report does not attempt to reach conclusions about the adequacy or excessiveness of current surplus levels for specific insurers, but instead strongly advocates for the need to re-examine current and anticipated risk distributions, to take advantage of opportunities to update and improve methodologies and practices and to open issues of risk and solvency to more active public scrutiny,” the authors concluded.

The BCBS plans studied in the report are: Blue Cross Blue Shield of Alabama, Blue Cross Blue Shield of Arizona, Blue Cross Blue Shield of Massachusetts, Blue Cross Blue Shield of Michigan, Excellus Blue Cross Blue Shield (New York), Blue Cross Blue Shield of North Carolina, Regence Blue Cross Blue Shield of Oregon, Blue Cross of Northeastern Pennsylvania, Blue Cross Blue Shield of Tennessee, and Blue Cross Blue Shield of Wyoming.