Study: Nonprofit Health Plans Hoarding Billions, Raising Premiums

The publisher of Consumer Reports magazine has found that some health insurance companies are hoarding millions in extra cash even as they raise premiums by double-digit amounts — and Blue Cross Blue Shield of Massachusetts is on the list.

Insurers are required to keep surplus cash to cover unexpected losses. But the new report, which looks only at health plans run by Blue Cross Blue Shield, says seven of the 10 plans it analyzed have cash reserves more than triple the minimum amount needed to keep them financially sound.

Blue Cross Blue Shield of Massachusetts is among those seven.

Calling these reserves "enormous surpluses," the report recommends that insurers spend that extra money on charitable work, refund it to consumers, or use it to set up "rate stabilization funds" that would lower fast-rising premiums.

"Really, when consumers are struggling to afford health care, should nonprofit plans be holding on to all of this money when they might be using it to reduce rate increases?" says Sondra Roberto, a staff attorney for Consumers Union, which did the report.

But a spokeswoman for Blue Cross Blue Shield of Massachusetts, Tara Murray, says the report is "flawed" because it inflates the company's surplus.

In Massachusetts, Blue Cross has a cash reserve of $1.4 billion, according to Murray, who described that amount as "appropriate" because it helps the company avoid the kind of problems that have plagued the financial sector and rippled through the rest of the economy.

Murray says that reserve is enough to cover just one trip to the emergency room, or three routine office visits, for each of Blue Cross Blue Shield's three million customers in Massachusetts.

And she says even a seemingly robust reserve could be depleted in the event of a mass catastrophe, such as Hurricane Katrina, or medical epidemic that sends thousands of people to hospitals.

"Think swine flu times 10, or times a thousand, which could happen," Murray said.

But the Consumers Union report argues that many Blue Cross Blue Shield reserves are ample enough that premium dollars should no longer be used to continue to fatten them. Typically, insurance companies' reserves are funded by a portion of the premiums paid by customers.

The report also notes that while state regulators require health plans to hold a minimum amount of extra cash to ensure solvency, most state laws don't set an upper limit on how much surplus an insurer can accumulate.

"We are just trying to call attention to that and say, 'There's no ceiling, but look at these numbers,' " Roberto said. "Some of these plans are well beyond the minimum required amounts — sometimes five, six times the amount that's minimum-required.

"I mean, the mission of a nonprofit is to provide affordable coverage, so we want that mission to be their priority," she added.

"Our priority is our members," Murray said, "and we're holding a reserve to ensure that our members are protected."

The debate over insurance reserves is timely given the Patrick administration's controversial decision in May to reject hundreds of proposed health insurance rate hikes on small businesses and individuals as "unreasonably high."

-- Here's the study (Scribd):

http://www.scribd.com/doc/34675247/Study-Nonprofit-Health-Plans-Amass-Excessive-Surpluses