News & Events

Report questions Blue Cross surplus

Insurer says HMO not counted

By Robert Weisman, Globe Staff  |  July 22, 2010

Blue Cross Blue Shield of Massachusetts, which has been seeking higher health insurance premiums from customers, amassed a surplus of $723.8 million at the end of 2009, more than 3 1/2 times the amount required by regulators for solvency protection, according to a report scheduled to be released today.

The report by Consumers Union, an independent research and educational group, shows that nonprofit Blue Cross Blue Shield plans across the country set aside billions of dollars in surpluses over the past decade at the same time they consistently raised premium rates, sometimes by double-digits in a single year.

Such increases might have been avoided or moderated if the insurance companies used some of their reserves to stabilize rates, the report said. It recommended that regulators consider surpluses as part of their rate reviews and reject hikes from insurers with excessive reserves, a practice Massachusetts officials say they already embrace.

A reserve is the excess of an insurance carrier’s assets over its liabilities. The money is intended to protect insurers and policy holders from financial losses in the event that medical emergencies result in unexpectedly high bills from health care providers. States set their own surplus levels, but Blue Cross Blue Shield plans typically keep more cash on reserve than is required.

“State insurance commissioners should be trying to strike a balance between providing protection against insolvency and providing affordable rates to consumers for health insurance,’’ Laurie Sobel, senior attorney for Consumers Union in San Francisco and coauthor of the report, said in an interview. “Consumers are really struggling right now, and the Blue Cross health plans are sitting on a lot of money.’’

But Tara Murray, a spokeswoman for Blue Cross Blue Shield of Massachusetts, said the numbers cited in the report are misleading because they do not include the carrier’s subsidiary, Blue Cross Blue Shield of Massachusetts HMO Blue, which sells policies separately from its parent company. The report’s authors acknowledged the subsidiary in a footnote.

When the subsidiary is included, the insurer’s surplus was $1.4 billion at the end of last year, according to Murray. But the parent company, together with the subsidiary, had a risk-based capital ratio of only 550 percent, not the 724 percent cited in the report, she said. The ratio is a key measure in the insurance industry, used to gauge the funds insurers keep on hand based on an assessment of their risks in protecting customers against unexpected financial setbacks.

Murray did not dispute that the insurer, like other Blue Cross Blue Shield plans around the nation, keeps a higher surplus than what the state requires. She said the reserve level is prudent given the uncertainties of health care.

“Our reserves are equal to one emergency room visit per member or three routine office visits per member,’’ she said. “They’ve been set at a responsible level to protect our members.’’

Earlier this year, Blue Cross Blue Shield of Massachusetts, the state’s largest health insurer with nearly 3 million members, sought base rate increases of 10 to 19 percent for small businesses and individuals. Those increases were denied by the Division of Insurance, which capped rates at last year’s levels, though the insurer is appealing.

In a report released in May, the state Division of Health Care Finance and Policy said the total surplus of eight Massachusetts health insurance carriers has climbed fourfold since 1999, to $2.5 billion.

That surplus was a factor in Governor Deval Patrick’s effort to fend off proposed double-digit rate increases for policies covering individuals and small firms, according to state insurance commissioner Joseph G. Murphy, who rejected the rate increases sought by Blue Cross Blue Shield and other insurers on April 1.

“As part of its comprehensive rate review, the Division of Insurance uses surplus contributions as a factor when assessing whether to disapprove requests for increases,’’ Murphy said in a statement. He said Blue Cross Blue Shield’s high contribution to its reserves “was one of the reasons I disapproved the carrier’s proposed premium hike.’’

Sobel, coauthor of the Consumer Union report, said her organization focused on Blue Cross Blue Shield plans because they dominate the health insurance market in most states. The report examined plans in 10 states, including Massachusetts, and found they held more than $32 billion in surplus at the end of 2008.

“Those surplus funds are built primarily with customers’ premium dollars, and insurers typically include a targeted contribution to surplus in rate increases,’’ the report said. “Surplus can be used to moderate premium increases, yet we found that some financially strong Blue Cross Blue Shield plans with large surpluses have continued to seek double-digit rate increases.’’

Robert Weisman can be reached at