Blue Cross has 'excessive' surplus, Consumers Union reports

STAFF WRITERJuly 22, 2010 

The state's largest health insurer has accumulated an "enormous" reserve of cash, and lawmakers should consider using some of that money to help control surging rates, a national consumer advocacy group claims.

Blue Cross and Blue Shield of North Carolina has stockpiled a surplus of $1.4 billion with steady and steep rate hikes, Consumers Union reports in a study released today. The report examines the reserves of 10 nonprofit Blue Cross health plans across the country.

As with other plans, the reserves at this state's Blue Cross plan are well above industry standards, and more than what's necessary to protect the insurer's financial health and ensure that claims are paid, the report's authors say.

Blue Cross should be forced to tap some of that cash before state regulators approve annual requests to raise rates, the group said.

"We need to balance the surplus levels with the large rate increases many people are seeing," said Laurie Sobel, a senior attorney with Consumers Union, the publisher of Consumer Reports magazine. "Consumers are struggling. We're asking regulators to take a hard look at this."

Blue Cross spokesman Lew Borman responded that the company is following North Carolina law that requires health insurers to keep three to six months' worth of claims and administrative costs in reserve. The company is actually at the lower end of that range, with about 3.6 months.

"Reserves are the safety net for our customers," Borman said. "It's about financial stability and providing ongoing coverage for our customers."

Blue Cross pays about $11 billion in claims each year for its 3.7 million members. If there is a health emergency or epidemic, the company will need to use its reserves to make sure customers continue receiving care, he added.

But Consumers Union contends that insurance commissioners across the country should reject rate increases "when previously accumulated surpluses are sufficient to absorb potential underwriting losses."

The group focused on Blue Cross plans because they've become the dominant players in most states, Sobel said.

The report comes as new federal reform law calls on states to establish a process for reviewing "unreasonable" rate increases, the group said. Under the law, states can seek federal grants to improve their rate reviews.

The report also follows news that Blue Cross plans to slash administrative costs by 20 percent, or about $200 million, by 2014.

The strategy is aimed at improving financial results amid changes spurred by health reform, but also at keeping premiums down. Blue Cross raised rates an average of 12 percent this year. Some individuals were hit with much higher increases.

Read the story on Blue Cross' plans to cut costs and revamp its business here.

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