Insurance firms’ deep pockets under scrutiny

Curt Fackler will not let the insurance surplus issue go, and why should he?

Fackler, a former candidate for insurance commissioner, and one-time head of the Spokane County Republican Party, has fixated on the cash held by Washington’s health insurance companies since the Premera Blue Cross bankroll came to light during its efforts four years ago to become a for-profit company.

Premera then had $568 million in capital and surplus, the equivalent of three months’ premiums. At the end of 2009, the figure was $790 million.

Regence Blue Shield, with 723,146 members Washington’s largest health insurer, has an $892.8 million cap/surplus; Group Health $593.2 million; and Washington Dental Service $130.3 million.

PacifiCare has but $81 million, but there’s a story behind that. PacifiCare is for-profit and last year dividended $200 million to United Healthcare, its parent company. That’s money paid by 43,000 Washington subscribers that was spirited out of the state, unlikely to return unless United needs to rescue its subsidiary.

United reported a $3.8 billion profit for 2009.

In moderation, surpluses are a good thing. In case of an epidemic — like a serious H1N1 outbreak — the money will be there to handle the claims. And, in an investing environment like that of 2008, surpluses absorb the shock. Premera’s surplus, for example, skidded to $672.2 million in 2008 before rebounding with a 17.5 percent gain in 2009.

But $2.7 billion?

After the dividend to UnitedHealth, PacifiCare still held enough reserves to cover six weeks worth of claims. The Office of the Insurance Commissioner could not have allowed the dividend unless the company had an acceptable level of capital and surplus.

If that’s good enough for a profit-making company, why not Washington’s nonprofit insurers, which have no shareholders to satisfy?

Fackler, using two months’ reserves as a starting point, figures they could rebate to consumers – many of them small-business men and women – $1.4 billion. Regence could cut loose $552 million; Premera $437 million.

Regence in Washington, he notes, has surplus enough to cover more than five months of claims, while the surplus of its Oregon twin represents slightly more than three months.

But Insurance Commissioner Mike Kreidler cannot consider surpluses when looking at rates. The only tool is a requirement insurers pay out at least 74 percent of premiums in claims. Less than that, and the difference goes to the state, not the folks paying the premiums.

The newly enacted health care reforms will provide some relief by requiring by Jan. 1, 2011, at the latest, that payouts be 80 percent to 85 percent. If those thresholds are not reached, the difference goes to the subscribers, not the state or federal government.

How the legislation will treat existing or future surpluses has not been worked out. The rules are still being written.

The Washington Legislature should not need prodding from the federal government to address this issue.

H.B. 1858, introduced in 2009, would limit surpluses to two months, with anything in excess rebated to policyholders. The bill did not get a hearing. Fackler is optimistic that, with the policy changes at the federal level, the state lawmakers will take up the issue.

Maybe, but it will take an epidemic of common sense.