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How Much Is Too Much: Have Nonprofit Blue Cross Blue Shield Plans Amassed Excessive Amounts of Surplus?


In the last decade, nonprofit Blue Cross and Blue Shield (BCBS) plans have set aside billions of dollars in surplus, even as they raised rates for many customers. Surplus is the excess of a company’s assets over liabilities – essentially a health plan’s retained profits—which plans hold to protect the company and its policyholders and providers from financial losses. Nonprofit BCBS plans, including community–owned charitable plans and subscriber–owned mutual plans, held more than $32 billion in surplus at the end of 2008.

Those surplus funds are built primarily with consumers’ premium dollars, and insurers typically include a targeted contribution to surplus in rate increases. Surplus can be used to moderate premium increases, yet we found that some financially strong BCBS plans with large surpluses have continued to seek double–digit rate increases.

In our sampling of ten diverse nonprofit BCBS plans, we found that 7 out of 10 of the plans held more than three times the amount of surplus that regulators consider to be the minimum amount needed for solvency protection. For example, as of the end of 2009, BCBS of Arizona has surplus more than seven times the regulatory minimum. Healthcare Service Corporation, a mutual insurer doing business as BCBS of Texas, Illinois, New Mexico and Oklahoma, has five times the regulatory minimum. Meanwhile, over the past three years both insurers continued to raise their rates.

In this report, Consumers Union provides background information, analysis and policy recommendations on many of the key issues concerning health insurer surplus. CU’s recommendations include:

• States should rigorously reexamine the purpose of surplus and establish minimum and maximum ranges of surplus based on current solvency risks and other appropriate factors, including affordability for consumers.

• Other non–solvency purposes for surplus, such as business “growth and development” should be transparently presented and weighed against the necessity to keep premiums affordable.

• States should analyze surplus as part of their review process for rate increases. When a company has more surplus than is necessary for solvency protection, regulators should consider disapproving additional contributions to surplus, which are included in premiums increases.

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