OLYMPIA, Feb. 11.—Once again, Washington Insurance Commissioner Mike Kreidler is accusing health insurance companies of gouging customers, doubling rates while socking more than $2 billion away in the bank – and insurers are countering that it’s darn lucky they have the money with national health reform around the corner.
There’s nothing new about the argument, really, but it shows just how high the fears are running in insurance and business circles about Obamacare, one year away from the launch. The state’s business community is lining up with the big insurance companies as Kreidler makes another push for a hardy perennial – a bill that would allow him to order nonprofit health insurance companies to operate at a loss when they make big bucks on the stock market. Right now insurers are allowed to seek rates that cover their costs, but investment returns are theirs. Kreidler says that’s just not right where non-profit companies are concerned. The state’s two largest companies, Premera Blue Cross and Regence Blue Shield, each have racked up more than $1 billion in surplus funds while doubling premiums between 2005 and 2011. “It is hard to square these kinds of surpluses with the fact that families are struggling to maintain their health insurance benefits,” Kreidler said Friday as he touted his surplus-whacking bill before a House committee for the third session in a row.
Kreidler’s measure would allow him to consider nonprofit insurers’ surplus funds when he sets rates – essentially requiring them to eat into their savings to pay for ongoing costs. Insurance commissioners in 11 other states already have that ability, including Oregon, where Kreidler said that state’s regulators have cut insurance rates by one to nine percent. This year’s House Bill 1347 is essentially the same as proposals in previous sessions, but there is one new element to the argument – the time now is drawing near when the state and nation will see if the insurers’ point is correct. Will national health reform be the disaster they think? Will they need that money to survive? Do they need an insurance policy of their own?
A Most Familiar Argument
Insurance rates are a matter of public interest, unlike the pricing of other commodities, because painful experience has shown what happens under unbridled competition. Companies might set rates low to capture business, and then not have enough money to fulfill their promises. So regulators establish rates that cover the cost of doing business. But in this state they aren’t allowed to consider the overall picture – like a company’s investment returns. The special status of nonprofit companies argues for a different approach, Kreidler says. “After years of steep rate hikes, health care consumers deserve some break on their health insurance,” he told the House Health Care Committee Friday.
In this state the individual and small-group market is dominated by nonprofit companies. Regence and Premera, the biggest, exceeded $1 billion in surplus last summer, he said – that’s money in excess of the reserves they need to ensure they have an adequate cushion to pay out claims. Premera’s surplus grew by $182 million and Regence’s grew by $60 million, he said. Their surpluses have grown steadily since 2002, with the exception of the downturn when recession hit in 2008. “You think they would be more competitive in the marketplace, not less competitive,” Kreidler said. “For-profits have a duty to their shareholders – many of their shareholders are institutional investors, and they will beat the tar out of a for-profit if they are holding onto excess cash that could be disbursed to them as a dividend. Non-profits have a duty to you and me, the community, specifically the people that hold policies with that specific carrier.”
It is an argument Kreidler has made every time his bill has gotten a hearing. Perhaps the biggest difference between his latest presentation and those of previous sessions is that he is no longer touting the example of Group Health, also a non-profit insurer. By including Group Health last year, Kreidler got an even larger surplus figure of $2.4 billion. But Group Health has suffered reverses since then and its surplus has declined, Kreidler acknowledged under questioning from state Rep. Joe Schmick, R-Colfax. Kreidler explained his decision to omit Group Health by noting that the company, unlike the others, provides health care services through its own clinics; he also noted that one of its insurance products was underpriced.
Schmick said drily, “It was a good thing they had the reserves there.”
Companies are Spooked
Insurers say Kreidler’s figures demonstrate something else – they have every right to be spooked. Yes, their surpluses are going up, but that has nothing to do with the cost of doing business, which continues to rise – it is because of investment returns. That is shown by the fact that surpluses fell when the market tanked in 2008. And if they look at the prospects for the insurance biz in future, they say they are enough to make an actuary’s hair turn white.
Premera affliliate LifeWise of Washington, the state’s largest individual carrier, is losing big money right now because of new rules that exempt 40 percent of its new customers from a state questionnaire, said lobbyist Len Sorrin. Its losses in the first nine months of 2012 were equal to its entire surplus. “It is hemorrhaging money and its reserves are hugely insufficient at this point, and we think, as a result, this focus on this billion-dollar systemwide number really doesn’t get at the risk in the individual market.”
It is essentially the situation that will prevail throughout the insurance business when health reform launches in 2014 and insurers are barred from excluding customers for preexisting conditions. As part of the tradeoff in the federal bill, insurers nationwide got a rule requiring all Americans to obtain insurance – but there’s no telling whether the financial penalties will be great enough to get people to purchase what are likely to be costly insurance policies.
Rate-setting Becomes Political Decision
“In fact we generally lose money in the individual market, so those consumers are already being subsidized by our other lines of business,” said Chris Bandoli of Regence Blue Shield. Last year the company lost $5 million in the individual market, he said. “If our reserves are growing, in part it is because of investments in the markets, not because we are making obscene profits in the individual line of business. We think that leveraging our capital reserves to suppress rates is not a sustainable strategy. We consider it sort of an illusion of affordability – it does nothing to change the long-term trend of healthcare costs. It just masks a long-standing issue.”
Mel Sorensen of the Washington Association of Health Underwriters said rates ought to be based on the cost of doing business – the conservative sort of approach that ought to prevail in a business like insurance. Bringing in volatile stock market returns is risky; decisions will be political. “We think that however well intended this bill is, it has a terrifically detrimental effect if implemented,” he said. “The rate statute in Washington has been the same for decades. And with respect to health care, the rate statute is that rates must be reasonable relationship to the benefits offered.
“We are deeply troubled by the idea that maybe rates don’t have to be reasonable in relationship to the benefits offered, because we are going to use an outside mechanism to somehow politically suppress the rates that are actually justifiable and necessary. Rates need to be sustainable based on the costs that are presented to the carrier for the risks that are being undertaken. And we think that however well intended this bill is, the effect would be corrosive to an objective and a standard approach to the review of rate filings.”
Business-community interests are backing the insurers. Leaving aside arguments about the proper way to set insurance rates, the uncertainty created by the Affordable Care Act is reason enough to let things be, said Association of Washington Business health care lobbyist Matthew Canedy. “If carriers are required to drive down their reserves, even indirectly, to keep premium costs low, it can ultimately prevent them from meeting their obligations. Reserves are there to protect against risks so that carriers can ensure that there are no disruptions in coverage and frankly that is a protection that small businesses are counting on. No company large or small would want to deal with his level of uncertainty without some sort of safety net.”
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