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Q: Insurance regulation ( Answered,   0 Comments )
Subject: Insurance regulation
Category: Business and Money > Economics
Asked by: sanfran-ga
List Price: $200.00
Posted: 20 Nov 2006 14:34 PST
Expires: 20 Dec 2006 14:34 PST
Question ID: 784341
There are many health insurance companies that are not-for profit,
including some but not all the Blue Cross and Blue Shield companies.
After several good years in the health insurance industry (which moves
in cycles), these non-profits end up with high profits. I believe this
leads insurance regulators in their respective states to "force" them
to pay out again some of these profits. The way this is usually 'paid
out' again to consumers is that the non-profit health insurance
companies reduce their prices (their premiums).

My questions:
1. Is there any evidence that insurance regulators in California and
New York have done this recently? How about in the past?
2. What has it taken in the past for regulators to intervene and force
down the capital accumulated by the non-profit health insurance
companies? (what are their criteria, if any?) Are there rules, or is
this an arbitrary process?

Useful search terms may include: Non-profit Blues; capital requirements

Request for Question Clarification by umiat-ga on 20 Nov 2006 18:40 PST
Hello, sanfran-ga!
 Regarding financial surpluses in health insurance non-profits, you
have stated "I believe this leads insurance regulators in their
respective states to "force" them to pay out again some of these
profits. The way this is usually 'paid out' again to consumers is that
the non-profit health insurance companies reduce their prices (their
 Do you have any examples of this happening, or are you just theorizing? 
Subject: Re: Insurance regulation
Answered By: umiat-ga on 21 Nov 2006 09:34 PST
Hello, sanfran-ga!

  There is definitely a trend calling for increased accountability by
non-profit health insurance companies concerning excess surplus,
whether in the form of reduced premiums to customers or community
benefits in the form of healthcare initiative funding.

 Consumer pressure appears to be the driving force behind forcing
insurance regulators and state policymakers to take a look at the
excess surplus of non-profit health insurance companies within their
respective states and to initiate some definitive actions.


 This consumer-driven movement has prompted actions in several states
already. Unfortunately, I did not uncover much of a movement in
California or New York.

"Concerns about "excess surplus" in nonprofit Blues plans have arisen
in Pennsylvania, Rhode Island, Maryland, New Jersey, Hawaii, Montana,
and Delaware. Community advocates in these areas are seeking
assistance in exposing excess surpluses, and in determining how such
excess surplus might be used, such as expanding coverage to the
uninsured and reducing premiums of current policyholders."


"While it is common for insurers to set minimum amounts that plans
must hold in reserve in order to make sure that the plan is solvent
and can pay its claims, a few states have set maximum amounts that
nonprofit insurers can accumulate in surplus. In these states, if
nonprofit health insurers accumulate more than the maximum surplus,
they must return any additional amounts either to policyholders (in
the form of lower premiums) or to the community (by funding other
health initiatives)."

"States with maximum surplus limits for nonprofit insurance carriers
generally, or for Blue Cross Blue Shield in particular, are as
follows: Hawaii, Michigan, New Hampshire, and Pennsylvania."

Read "Understanding How Health Insurance Premiums Are Regulated."


"As one industry adviser put it, for-profit insurers basically just
"try to make as much money as they can." National experts noted that
in contrast, nonprofit BC plans have an expectation or legal
requirement of not accumulating too much surplus. Since they cannot
pay out their earnings through dividends, at some point if they are
successful they may reach a stage where it is not necessary to
continue earning more profits. Some BC plans have even paid back
excess surplus to policyholders in the form of rebates or rate
reductions, often under pressure from regulators and sometimes as a
result of policyholder lawsuits."

Read "The Impact of Blue Cross Conversions on Accessibility,
Affordability, and the Public Interest." Mark A. Hall and Christopher
J. Conover. The Milbank Quarterly. 2003


An overview of the call from consumers for non-profit accountability
is evidenced in the article below:

"Make?nonprofit'health insurers do their duty." Consumer July 2005

 "Unlike for-profit corporations, nonprofit health insurers are
legally bound to fulfill a public-benefit obligation, such as meeting
the needs of people without health insurance, in exchange for
significant tax advantages and other benefits. But while consumers are
getting squeezed by higher premiums and co-pays, some nonprofit health
insurers are quietly abandoning their social-mission obligations. Some
are stockpiling cash and spinning off for-profit subsidiaries."

"As of December 2003, the 38 nonprofit Blue Cross and Blue Shield
plans across the country retained approximately $20 billion in
surplus, an increase of 30 percent since 2002. Concerns about "excess
surplus" in nonprofit "Blues" plans have recently arisen in several
states, including Delaware, Maryland, New Jersey, Pennsylvania, Rhode
Island, and in Washington, D.C."

"In Pennsylvania, for example, the state's four nonprofit Blues plans
and their for-profit subsidiaries hold more than $6 billion in
surplus, by one estimate. At the same time, 1.4 million Pennsylvanians
are uninsured. Local unions have joined with community advocates for
the unemployed and for low-wage earners to challenge the Pennsylvania
Blues plans' surplus levels and to question expenditures made on
behalf of their mission. Consumers Union, the nonprofit publisher of
Consumer Reports, provided technical assistance for those efforts."

"In 2004 the Pennsylvania Insurance Department ordered the insurers to
submit detailed information on their surplus levels and a proposal for
equitable distribution of excess surplus to benefit policyholders, the
uninsured, and the underinsured. The state insurance commissioner
subsequently decided that the Blues plans' surplus levels were
acceptable. Advocates are appealing that decision."

"The good news is that in February 2005, the governor of Pennsylvania
and the Blue Cross plans reached an agreement under which the four
insurers promised to devote almost $1 billion over nearly six years to
charitable community health activities. That includes the provision of
basic health-care coverage for thousands of the state's low-income and
uninsured residents."

"Consumers can demand that nonprofit health insurers meet much higher
standards of accountability to their communities. State policymakers
should consider enacting standards for appropriate ceilings on
nonprofit surplus accumulation. Policymakers can establish guidelines
for the use of existing "excess surplus." The National Association of
Insurance Commissioners, which advises state insurance regulators,
should amend its model legislation to ensure that health insurers do
not stockpile excessive surpluses. And regulators should exercise
their existing authority to oversee nonprofit health plans' activities
to ensure accountability."


From "State of the States - January 2006." Academy Health

Taking a Closer Look at Not-For-Profit Health Insurers:

"Across the nation, several states are grappling on the role of
not-for-profit insurers not only in terms of their charitable
contributions but also the tendency to maintain extremely high reserve
funds. During the summer of 2005, lawmakers in Michigan were looking
at the $2.2 billion surplus of non-profit health insurer Blue Cross
Blue Shield of Michigan as a source to financially sustain state
health care programs in light of the state?s budget crisis. Senate
Appropriations Chairwoman Shirley Johnson (R-Troy) stated that she
would consider introducing legislation to revoke the tax-exempt and
non-profit status of Michigan?s largest health insurer if it did not
voluntarily contribute funds to the state. Although no action has yet
been taken, the issue is still under consideration."

"Washington state also is considering whether health insurer surpluses
should be regulated. "Regulators look at carriers? surplus to be
certain it?s sufficient to protect policyholders and the market," said
Insurance Commissioner Mike Kreidler. "There currently is no standard
that determines how much surplus is excessive. Given today?s climate
where carriers are experiencing record profits, yet health insurance
premiums continue to rise faster than the rate of inflation, we need
to ask, how much is too much? Excess surplus is an emerging issue
which I believe deserves a closer look and is one of my top policy
priorities for 2006."

"In Pennsylvania, the state?s four not-for-profit Blue Cross and Blue
Shield plans came under investigation for having accumulated capital
surpluses that stakeholder groups considered excessive. An analysis of
the plans? activities noted, however, that there is no "right" amount
of accumulated surplus for health insurers. In 2005, the Pennsylvania
Insurance Commissioner moved to define acceptable levels of surplus
capital for the four Blues plans.

"On February 7, Pennsylvania Governor Edward Rendell (D) signed the
agreement with Blue Cross Blue Shield (BCBS) that states that the four
BCBS insurance plans in Pennsylvania will spend approximately $1
billion in surplus funds, representing more than 1 percent of their
premium revenues, over six years on different health programs in the
state. This new Annual Community Health Reinvestment fund will donate
$85 million in 2005 alone, allowing approximately 29,000 new state
residents on the wait list to enroll in the adult Basic program, a
state-funded program available to residents between the ages of 19 and
64 who have not had health care coverage for more than 90 days and who
have incomes at or below 100 percent FPL."

"Pennsylvania is the first state to initiate and successfully
negotiate such a program with health insurers. Clearly, the Community
Health Reinvestment fund is unique and may have the potential to be
replicated in other states and provide them with the needed revenues
to preserve necessary and critically needed health care programs."


The following article focuses on the excess surplus in Rhode Island's
health care plan system and the criteria utilized by the Lewin Group
to analyze the appropriateness of that surplus. The article provides
an excellent example of various factors which are considered when
analyzing whether a non-profit's excess surplus falls within
acceptable limits.

From "Considerations for Appropriate Surplus Accumulation in the Rhode
Island Health Insurance Market As It Relates to: United HealthCare of
New England." The Lewin Group. Prepared for: Office of the Insurance
Commissioner. August 11, 2006


"Prior to the passage of the Rhode Island Health Care Reform Act,
stakeholders proposed that BCBSRI should give up some portion of its
surplus to help make health coverage more affordable. Stakeholders
wanted to ensure that BCBSRI, as a non-profit entity, is dedicated to
providing affordable health care to the public. The impetus behind the
Reform Act was based on legislative findings which found, among other
things, that...the power of health care insurers...has become great
enough to create a competitive imbalance, reducing levels of
competition and threatening the availability of high quality,
cost-effective health care." Thus, the legislation directs the Rhode
Island Insurance Commissioner to focus on four key areas: guarding the
financial solvency of health plans, promoting consumer protection,
encouraging the fair treatment of providers, and helping plans improve
access, quality and the efficiency of health service delivery.


"To assess the sufficiency of each plan?s surplus levels, Lewin
conducted a series of analyses in early 2006 in which we applied
existing models for assessing health plan solvency. For BCBSRI and
NHP, we performed a detailed analysis of each plan?s financial
experience and compared current surplus levels with the amounts
necessary to withstand a potential sustained downturn in the
underwriting cycle. This analysis allows us to recommend an
appropriate range for amounts of surplus for these two plans. For
UHCNE, we determined that developing a target surplus range was not
feasible without a thorough review of all financial relationships
between the parent company, United Health Group, Inc., and its

* (See entire article for more information pertaining to this analysis)


"State insurance regulators have broad discretion to regulate health
insurers. The majority of the states have adopted the NAIC?s Model
Health Organization Risk-Based Capital Act. State laws concerning
reserves and surpluses and insurance commissioners? uses of their
authority aim to ensure that sufficient capital is available to health
insurers in order to weather adverse events and protect consumers.
Very little state regulation exists that is designed to limit the
amount of reserves and surpluses that health insurers for that matter,
can accumulate."


C. How Do Other States Regulate Maximum Surplus?

Given the lack of affordability of health care due to rising health
care costs, there has been increasing interest in capping surplus.
However, while most states have adopted the NAIC minimum surplus
requirements, few states have chosen to regulate the upper bounds of
surplus capital accumulation.

* "Pennsylvania set upper limits on surplus on all four of its Blue
plans (950% RBC for Blue Cross of NEPA and Capital Blue Cross; 750%
for Highmark and Independence Blue Cross). Currently none of the
Pennsylvania Blue plans holds excess surplus given these upper limits.
If a plan did exceed the surplus upper limit, the plan would have to
file a report with the Pennsylvania Insurance Commissioner justifying
its current surplus level or file a plan explaining how it will divest
its surplus in a manner that will benefit its policyholders.

* "Michigan has capped Blue Cross Blue Shield of Michigan?s surplus at
an RBC ratio of 1000%. If the cap is reached, BCBSM must file a plan
for approval by the Commissioner to adjust its surplus to a level
below the allowable maximum surplus. The Commissioner can formulate an
alternate plan if it disapproves of the plan filed."

*  Hawaii law requires that if a non-profit health plan?s net worth
exceeds 50% of the prior year?s total health care expenditures plus
operating costs, the plan must refund the money to clients."

* "New Hampshire caps a non-profit health insurer?s contingency
reserve funds at 20% of annual premium incomes. However, the law is
moot since the New Hampshire BCBS plan, which was the state?s only
non-profit plan, is now a for-profit. Prior to this conversion, the
state chose not to enforce the limit."


For more on Maryland, see:

 "Considerations for Appropriate Surplus Accumulation in the Rhode
Island Health Insurance Market As It Relates to: Neighborhood Health
Plan Prepared for: Office of the Insurance Commissioner. August 11,


Concerning action in Pennsylvania, see:

"Considerations for Regulating Surplus Accumulation and Community
Benefit Activities of Pennsylvania?s Blue Cross and Blue Shield
Plans." Final Report. Prepared for: The Pennsylvania General Assembly
Legislative Budget and Finance Committee. July 13, 2005


Recent actions in Montana:

CONVERSION LEGISLATION. New Law Protects Nonprofit Health Assets and
Montana Consumers." April 8, 2005

"Governor Brian Schweitzer of Montana signed into law SB 317, which
regulates the conversion of nonprofit health insurers into for-profit
businesses. The bill was passed by overwhelming majorities in both
houses of the Montana Legislature and is being hailed by consumer
advocates as a model for other states to emulate."

"Because of tax advantages bestowed upon nonprofit organizations,
their assets are essentially owned by the public. Montana common law
already requires such assets to continue to be used for a charitable
health purpose if a nonprofit converts to a for-profit business. As a
result of health conversions nationwide, over $18 billion has been
preserved in more than 170 independent foundations that carry on the
charitable mission of addressing community health needs."

"According to Scott Benbow, staff attorney in Consumers Union?s West
Coast Office, "Montana?s bill provides strong protections for
consumers in Montana, reduces the likelihood of litigation against the
state, speeds up the conversion proposal review process, and prevents
the depletion of the charitable assets. We applaud Governor Schweitzer
and Montana lawmakers for protecting consumers and preserving
nonprofit charitable assets."


Californians are beginning to speak up!

See "California Health Care Insurers Found Holding Huge Excess
Reserves," by Dave Reynolds. The New Standard. May 20, 2005

"A California consumer rights group is calling on state officials to
require insurance companies to justify their overhead costs and to
refund some reserves, following the revelation that two insurers have
enough surplus money in holdings that they could pay for one year of
health insurance for 52 percent of the state's currently uninsured

"The Foundation for Taxpayer and Consumer Rights (FTCR) released an
analysis Wednesday of the excess reserves held by California's top
seven health insurance companies. The two largest insurers, the Kaiser
Foundation and Blue Cross, have combined excess reserves totaling
nearly $11 billion -- enough to cover an estimated 3.6 million

The analysis comes as state regulators investigate Blue Cross for
significantly raising rates in the wake of a recent merger.

FTCR also called on California's Attorney General Bill Lockyer to look
into Kaiser's nonprofit status, considering its massive reserves.

"Blue Cross's and Kaiser's excessive reserves and unnecessary premium
increases are symptomatic of an unregulated and uncompetitive health
care market," said FTCR's Jerry Flanagan."


I did not uncover any articles or public campaigns concerning excess
surplus in the non-profit insurers in New York. The following articles
might be of interest, even though they are outside the line of focus.

Read "State defends Blue Cross privatization," By YANCEY ROY. GANNETT
Read "WellPoint's Blue Period May Be Over." By MILT FREUDENHEIM. New York Times
September 28, 2005

See "N.Y. City Sues to Block Major Health Insurance Merger." November 15, 2006


If you are interested in reading about Non-Profit Conversions, etc.
see the Consumers Union website.

What Is A Conversion?

 About conversion in California

 About New York


 I hope this information helps to answer your questions. This is a
weighty topic and should certainly spark a great deal of consumer
interest! If you need additional clarification, please don't hesitate
to ask. I will try to help if I can!



non-profit blues
non-profit blues New York OR California
non-profit health plans excess surplus New York OR California
"excess surplus" New York OR California health non-profits
Minnesota law regarding excess surplus of non-profit health
mutual OR non-profit health insurers surplus assets
New York OR California health insurance non-profit surplus
surplus reserves New York non-profit insurers
surplus reserves California non-profit insurers
insurance regulation of health non-profits in California AND excess surplus
insurance regulation of health non-profits in New York AND excess surplus
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