BCBS Stockpiled Billions, Consumers Group Says

Over the past decade, nonprofit Blue Cross and Blue Shield (BCBS) health insurers across the country stockpiled billions of dollars in surplus--while raising premiums for consumers by as high as 20% annually, according to a report from Consumers Union released Thursday.

Surplus funds, which are built primarily with consumers' premium dollars, can be used to moderate premium increases. However, Consumers Union said in its report, How Much is Too Much, that some of the financially strong BCBS plans with large surpluses have continued to seek large rate increases.

Nonprofit BCBS plans, including community owned charitable plans and subscriber owned mutual plans, held more than $32 billion in surplus by the end of 2008, according to A.M. Best.

In particular, a Consumers Union sampling of 10 diverse non-profit Blues plans found that seven of the 10 plans held more than three times the amount of surplus that regulators considered to be the minimal amount needed for solvency protection.

"These Blue plans hit consumers with big premium hikes while they've built up enormous surpluses," said Sondra Roberto, Staff Attorney for Consumers Union, in a statement. "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."

The report cites several examples, including:

• Blue Cross Blue Shield of Arizona raised rates for its individual market customers between 14.5% and 19.4% in 2007, 13.1% and 15% in 2008, and 8.8% to 18.4% in 2009. During that time, the company's surplus grew from $648.3 million to $717.1 million, which is more than seven times the amount that regulators consider to be the minimum necessary for solvency protection.
• Health Care Service Corporation (HCSC), doing business as Blue Cross Blue Shield of Texas, Illinois, New Mexico and Oklahoma, raised rates in Texas on some individual and family plans multiple times in a year between 2007 2010. At the same time, HCSC's surplus grew from $6.1 billion in 2007 to $6.7 billion in 2009--up from $4.3 billion four years earlier in 2005; the company's surplus was five times the minimum required for solvency protection.

In one response, Blue Cross Blue Shield of Arizona said that similar to a family's savings account, it sets aside money in reserves to pay for unexpected health care claims and other expenses. "The amount we have in our reserves equals six months of expenses—an amount that ensures our future stability and ability to provide health care services to our customers," it said in a statement.

Consumers Union proposed that the companies holding excess surplus should use that money to:

• Set up a "rate stabilization fund" designed to moderate premium increases going forward,
• Refund policyholders the amount that they overpaid in premiums that contributed to the excessive surplus, or
• Spend the money for charitable purposes like community health programs or affordable coverage initiatives.

The BCBS plans studied in the report are: Blue Cross Blue Shield of Alabama, Blue Cross Blue Shield of Arizona, Blue Cross Blue Shield of Massachusetts, Blue Cross Blue Shield of Michigan, Excellus Blue Cross Blue Shield (New York), Blue Cross Blue Shield of North Carolina, Regence Blue Cross Blue Shield of Oregon, Blue Cross of Northeastern Pennsylvania, Blue Cross Blue Shield of Tennessee, and Blue Cross Blue Shield of Wyoming.