Thursday, January 6, 2011

Why we're proposing legislation to limit the surpluses of non-profit health insurers

Among our legislative proposals this year: a bill to limit non-profit health insurers' rate hikes once the company's surplus funds grow above a certain level.

It would allow the insurers a substantial cushion of cash for unforeseen emergencies, but also help keep premiums from growing any more than absolutely necessary.

The background: Insurers, by the nature of their business, collect and invest substantial amounts of money. They need to do this, in order to pay out claims. They have to comply with solvency regulations designed to ensure that the company can make good on its promises to policyholders. If that's in doubt, we can take the company over and try to rehabilitate them so that policyholders and medical providers are protected.

But at this point, the state's three major non-profit health insurers (Regence, Premera, and Group Health) have large surpluses that have grown dramatically over the past 8 years. Together, they have more than $2 billion more than they expect to pay out in claims. At the same time -- this will come as news to no one -- health insurance rates have grown dramatically.

So we're seeking the explicit authority to consider surpluses -- and investment income -- when reviewing proposed rates.

Here's what those surpluses look like. (Capital and surplus means the balance of assets after making provisions for the payment of claims):

Our proposal would work like this: Once an insurer has enough to pay its expected claims plus an extra three months of average claims, we would not approve a rate that adds more to the surplus. (An exception could be granted, however, if the restriction would threaten an insurer's financial health.)

The three insurers listed above have surpluses equal to 4-5 months of claims each. They'd still have a substantial cash cushion in case of unforeseen costs, but we believe our proposal would also help keep premiums down.

The proposal would affect the lines of insurance over which we have the authority to review rates: individual and small group coverage.

The legislative session begins next week. Stay tuned.