Insurance Commissioner Mike Kreidler.

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, Jan. 26.—Mike Kreidler says health insurers have been gouging customers, but the companies say the insurance commissioner ought to keep his hands off that $2.4 billion surplus they’ve racked up over the years.

            They might need the money for a rainy day – like when federal health reform takes effect.

            It was the opening round in this legislative session’s biggest insurance-industry battle, and it played out before the Senate Health and Long-Term Care Committee Wednesday morning. The state’s largest health insurance companies are getting set for a knock-down drag-out fight over the money they piled up the last few years when they were doubling and tripling their rates.

            And Kreidler is just as ready. It’s a scandal, he told lawmakers, “when you’re looking at the rate increases that are taking place right now in the individual and small-group market, and the kind of anguish that causes for individuals.”

            Kreidler’s bill wouldn’t make the insurers give the money back. But it would allow him to look at how much money they have when he approves their insurance rates. The state’s big three companies have more than enough money already, he says, and he wouldn’t let them keep putting more in the bank.

            There are others who say the Legislature ought to go farther, and force the insurers to return money to the people who paid it.

            And the funny thing about the argument is this. Normally lawmakers and regulators worry that insurance companies aren’t saving enough money. Now they’re saying they’ve saved too much.

            An Interesting Insurance Bill – Really

            Something else makes this one unusual. Every year you see pitched battles between Kreidler and the insurers. But most of the time they’re about arcane accounting rules, and it’s hard for anyone outside the business to stay awake. With this one Kreidler has put his finger on a hot button for the general public – the fast-rising rates the state’s three biggest companies charge for health coverage.

            Over the last 10 years, the big three have imposed big rate hikes – Group Health, 122 percent; Regence, 150 percent; Premera, more than 200 percent.

            And to be sure, Kreidler approved those rates. But it turned out they were bigger than they needed. Their total surplus grew from about $850 million to $2.4 billion.

            “How much is enough? That is the real question you have to ask,” Kreidler said.

            That surplus right now is big enough to cover their expenses for up to five months, depending on the company, and that’s on top of a legal requirement that they maintain a two-month reserve. Kreidler argues that a three-month surplus is about right.

            His bill, filed in the Senate as SB 5247 and in the House as HB 1301, wouldn’t let them raise rates to sock away anything more. And each year, when they come to him to set rates, Kreidler would be able to look back three years to make sure they didn’t put more money in the bank. If they did, he’d be able to adjust their rates accordingly.

            If it seems a little strange that the state could tell a private company it’s making too much money, there’s an important distinction. The three companies are registered as non-profits. That gives them tax advantages. By doing that, Kreidler said, they give the state the right to judge their behavior.

            “Nonprofits, by their very chartering papers, are responsible to the community, not to the stockholders, the community being the people that hold the policies,” he said.

            Getting Ready for the Perfect Storm

            Insurance executives say it’s a new one on them. One of the state’s biggest beefs is that insurance companies don’t set aside enough money to pay their bills. Now company executives say they’re worried about that, too. No one quite knows what’s going to happen when federal insurance reform takes effect in 2014. Kent Marquardt of Premera Blue Cross said the increased costs are bound to wipe out a third of the company’s surplus, and that’s if everything goes right.

There’s plenty of reason to think it won’t. They’ll have to offer insurance to everyone at pretty much the same rate, they won’t be able to deny coverage for preexisting conditions, there won’t be any limits on lifetime or annual coverage, and they’ll have to pay new taxes to cover high-risk individuals. And that rule requiring everyone to buy insurance – they say that’s pretty weak.

Somewhere in there, they say, something just might go wrong.

Couple health reform with, say, an epidemic and maybe another glitch in the economy and there goes most of that surplus, Marquardt said. “With all the unknowns around health reform and the economy, we should not be limiting reserves on Washington health plans,” he said.

And never mind how they racked up the money, the executives say – they’re just lucky they have it.

“As you know, in engineering, the principle is to be prepared for the 100-year flood,” said Joe Gifford of Regence Blue Shield. “We know plenty of examples of entities that didn’t prepare, from Lehman Brothers, to AIG to the city of New Orleans. The risk in health care is only going up.”

Said Brett Meyers of Group Health, “We know that health reform is going to add new costs to our providing health care, and it’s uncertain what the magnitude of those costs will be.”

            Runs Counter to Insurance Principles

Kreidler’s plan goes against established principles of good insurance regulation, said Mel Sorenson, a lobbyist for agent and underwriters groups and America’s Health Insurance Plans, a national trade association. You want to encourage insurance companies to set money aside, he said. The National Association of Insurance Commissioners recommends that states don’t consider whether insurers have too much money when they set insurance rates. And Sorenson said the organization is considering making it a requirement in order for state programs to be accredited.

“That’s how it ought to happen,” he said. “It ought to have nothing to do with a confiscatory policy with regard to unnecessary capital surplus. It is inappropriate because the consensus of opinion is that it’s the wrong thing to do.”

If Washington passes the bill and the NAIC moves forward, Washington will have to repeal it immediately or lose its accreditation, Sorenson said. Kreidler’s office points out that the national association has taken no position on the bill.

            Ought to Give the Money Back

If Kreidler’s proposal seems radical to the insurance companies, you can also say he’s taking a middle ground. There are those who say he doesn’t go far enough. State Sen. Maralyn Chase, D-Shoreline, said she plans to introduce an amendment to Kreidler’s bill that would cut the surplus to two months and make the companies pay the rest of it back to policyholders.

“You know,” she said, “most of our people in our state who pay their insurance premiums have limited budgets, they want to pay, they want to be responsible, but sometimes their budgets are limited, and they are unable to pay an ever-increasing, overcharging insurance premium. And I think this bill will go a long way toward getting control of those costs.”

Chase was backed up by two insurance men who have run for commissioner themselves – as Republicans. They were Brian McCullogh, who ran in 1992 and 1996, and Curt Fackler, who ran in 2000, 2004 and 2008.

McCullogh pointed out that there is precedent for a refund – in North Dakota and as recently as last month, in New Hampshire.

And Fackler, of Spokane’s Benefits Consultants Northwest, urged the committee to compare Washington’s statistics with Oregon. Reserve requirements in both states are the same. But Regence of Washington has a greater surplus by $500 a customer over its counterpart in Oregon, he said. Group Health’s per-member surplus is $600 greater than that of Kaiser of Oregon, an HMO of similar size. The big surpluses are one reason Washington doesn’t have much competition, he said.

           “Right now a company could come in and Group Health or Premera could say, okay, no premiums for two months,” Fackler said. “No company can compete against that. That’s why it’s critical. I believe that there should be a refund to policyholders. This is our money, and we’ve been overcharged.” 

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