As states try to rein in hikes to private health insurance rates, there’s growing scrutiny nationwide on nonprofit insurance companies – and whether they deserve the tax breaks that come with nonprofit status. And much of the criticism has fallen on Blue Cross Blue Shield plans, a network of 37 distinct companies that have set aside billions of dollars in surpluses, built on member premium dollars.
Last year, officials revoked Blue Shield of California’s tax-exempt status – a move that the company is challenging in the state. But the nonprofit’s former public policy director, Michael Johnson, sided with California tax authorities, telling the L.A. Times that Blue Shield of California had been “shortchanging the public for years” by acting too much like a for-profit operation.
And Consumers Union, which publishes Consumer Reports, in 2010 urged states to “rigorously reexamine the purpose of surplus and establish minimum and maximum ranges of surplus, and, if the surplus is too high, to require nonprofit plans to “spend money for charitable purposes such as community health programs or affordable-coverage initiatives.” The title of the Consumers Union health insurance report, which was co-authored by Larry Kirsch, a Portland-based health economist? “How Much Is Too Much: Have Nonprofit Blue Cross Blue Shield Plans Amassed Excessive Amounts of Surplus?”
But in Oregon, it’s unclear who – if anyone – is monitoring surpluses at the state’s nonprofit health insurers. The state sets minimum surplus levels, but does not cap how much excess insurers can keep in the bank, and authorities seem to have little ability to act on surpluses in any case.
In part, that’s because the state does not give Oregon’s nonprofit insurers the income tax break they receive in California – which means that a tool used to regulate nonprofits in that state is not available here.
Asked to comment on the recent situation in California, Regence BlueCross BlueShield of Oregon issued this statement: “The situation with Blue Shield California is not applicable to Regence BlueCross BlueShield of Oregon. Unlike Blue Shield of California, Regence BlueCross BlueShield of Oregon does not receive an income tax exemption where it files.”
State regulators also do not seem to have made surpluses a high priority. In an online chat with consumers this January, state Insurance Commissioner Laura Cali was asked why the state does not place a ceiling on surpluses or profits. She responded by noting that state regulators have denied some rate increase proposals. “It’s also important to recognize that the ‘right’ amount of surplus depends on many different aspects of an insurance company’s business and the risks it faces,” Cali continued.
The Lund Report sought an interview with Cali to ask about California’s revocation of an insurer’s nonprofit status, and whether something similar could happen in Oregon.
“Department of Consumer and Business Services Insurance Division and Commissioner Cali do not have the regulatory authority or expertise to comment on Regence’s tax-exempt status,” insurance division spokesman Jake Sunderland said, in declining the interview request.
And while two years ago Sen. Chip Shields, D-Portland, proposed limiting rate increases at nonprofit insurers with excess premiums – building on an idea put forth by former Oregon Insurance Commissioner Joel Ario – that effort never took off in the state legislature.
Part of the problem seems to be the question of “how much is too much,” as Cali noted in her online chat with consumers.
Without enough surplus, an insurance company could run out of money in an expensive year. Surpluses keep these operations solvent, and provide cash to pay claims when more people are sick or injured than the company expects. Yet in its analysis, Consumers Union found that seven of 10 plans it reviewed held more than three times the minimum surplus required by regulators – and that even insurers that far exceed the minimum continue to raise their rates.
Consumers Union specifically singled out an Oregon health plan in its report – though admittedly, five years have passed since the example it cited: “Regence Blue Cross Blue Shield of Oregon raised rates on some individual policies an average of 25.3 percent in April 2009 and 16 percent in April 2010. As reported at the end of 2009, Regence has $565.2 million in surplus, about 3.6 times the regulatory minimum.”
A look at the latest figures provided by Regence BCBS of Oregon to the National Association of Insurance Commissioners shows that as of Dec. 31, 2014, the company’s capital and surplus had grown to $635.3 million – rising by $7.9 million in a single year.
While the Consumers Union report and California regulators have focused on Blue Cross Blue Shield plans, it’s worth noting that Regence BCBS of Oregon is not alone in this state. Many nonprofit insurers have surpluses that exceed requirements.
Providence Health Plan ended 2014 with $530.4 million in capital and surplus – up by $23.5 million in a single year. And Kaiser Permanente’s example shows the value of large reserves, as it set aside substantial funds to meet its long-term retirement and pension commitments. Its Oregon health plan’s capital and surplus of $203.2 million at the end of 2014 was down from $480.1 million a year before.
And, according to Consumers Union, Oregon is ahead of many states, because its rules allow regulators to consider insurers’ financial positions when reviewing rate proposals for individuals and small businesses – though regulators are not required to include this review.
So what should be done? Unlike California, Oregon can’t threaten to rescind tax breaks. But in any case, Consumers Union’s review recommends a more cautious approach. “The prudent course of action is for policy makers to revisit surplus definitions and practices with an eye toward fundamental modernization of solvency and surplus standards,” it recommends. Rather than rush to judgment, Consumers Union recommends state and federal regulators engage in a careful look at surpluses to develop new guidelines that balance insurance company financial stability more carefully with the push to rein in the cost of coverage.
- Courtney Sherwood can be reached at [email protected]. Follow her on Twitter at @csherwood.