Tennessee's biggest health insurer could use its growing surplus to lower its health care premiums, a new study from Consumers Union suggests.
BlueCross BlueShield of Tennessee and other plans from nonprofit Blues have nearly doubled their reserves over the past decade while continuing to raise premiums at more than twice the rate of inflation, the study says.
PDF: Consumers Union study
"These Blue plans hit consumers with big premium hikes while they've built up enormous surpluses," said Sondra Roberto, a staff attorney for Consumers Union who wrote the study for Consumer Reports magazine. "Insurance premiums shouldn't keep going up year after year when insurers are hoarding such huge surpluses.
"These rate hikes could have been reduced or avoided if companies applied just a portion of their surplus to rate stability, while leaving sufficient funds for solvency protection."
Roy Vaughn, communications manager for the Chattanooga-based BlueCross plan in Tennessee, said the company's $1.1 billion of reserves have been built up over the plan's 65-year history and represent less than 58 days of what BlueCross pays out in medical claims for its 3 million customers.
"We view our strong reserves as being the ultimate consumer protection to ensure our members that we can always meet their health care needs," Mr. Vaughn said.
"To think about cutting premiums by using our reserves doesn't address the real drivers of premium increases, which are rising medical costs and utilization."
Mr. Vaughn said using excess reserves would offer only temporary rate relief and could make BlueCross more vulnerable to another major economic downturn or an epidemic of costly sickness. In 2008, when the stock market crashed and the economy soured, BlueCross reserves fell by more than $257 million.
But since 2001, the Tennessee BlueCross plan has nearly doubled its reserves, which are now 32 percent above the minimum required by the Tennessee Department of Commerce and Insurance.
Consumers Union found that the Tennessee Blues' 2009 reserves were more than five times as much as the minimum risked-base capital score recommended by the National Association of Insurance Commissioners.
Among 10 nonprofit BlueCross plans analyzed in the study released Thursday, the Tennessee Blues had the third-highest level of reserves in comparison with the size of the business. Tennessee's risk-based capital reserves were more than twice those of the Alabama BlueCross and nearly twice as much as the North Carolina BlueCross plan.
"We would urge state regulators to take a closer look at the reserves these companies have and to look at what states like Pennsylvania and Maryland have done to set a maximum, as well as a minimum level, for their surpluses," Ms. Roberto said.
In 2009, average premiums for BlueCross individual policyholders rose 7.7 percent, although rates for some people were more than twice that amount. In the group market, BlueCross said it held average rate increases to 4.6 percent last year, partly because of policy changes made by employers.
Health insurers historically have kept reserves to protect against health catastrophes, investment losses and inadequate underwriting of policies in projecting future rates. But the Consumers Union study found that the Tennessee BlueCross plan did not have any overall underwriting losses in the 2001 to 2009 study period.
"We're no longer seeing the historical cycle of underwriting profits and losses every three years and, as a result, you simply don't need as big of surpluses," Ms. Roberto said.
Consumers Union also said health care reform will increase the number of insured Americans and give some grants to state regulators to better police health plans.
One out of three Americans with private health coverage is insured by a nonprofit BCBS plan. Those plans held more than $32 billion in surplus funds on their balance sheets at the end of 2008, the study found.
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