Reserves and rates

Your July 28 editorial concerning Blue Cross and Blue Shield of North Carolina's reserves raised the issue of whether the size of those reserves contributes to rising premium costs.

The fact is, premium increases are driven primarily by the rising cost and use of health care. In 2009, 87 cents of every premium dollar was used to cover the medical costs of our customers. Large premium increases are neither good for our customers nor do they help our competitiveness.

The contribution to reserves, however, represents only a small portion of the premium dollar. North Carolina law requires reserve levels of between three and six months of claims and administrative expenses. Our reserves have averaged toward the lower end of that range over the past 25 years.

Those reserves are a safety net for customers, particularly when you consider the value of claims we handle each year exceeds $11.3 billion while reserves equal about $1,100 per insured member. This is not much more than the cost of an ambulance ride for each customer.

At Blue Cross, we're committed to doing our part. We are working to reduce administrative costs by 20 percent by 2014. But the only way to truly make rates affordable is for insurers, employers, providers and consumers to work together to bring down the skyrocketing cost of medical care.

Gerald Petkau

Chief Financial Officer, Blue Cross and Blue Shield of North Carolina

Durham