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Plans should limit surpluses if they want rate hikes

Health insurance companies in Washington may soon see their surpluses scrutinized when they request a rate increase.

Current state law does not allow surpluses, including investment income, to be taken into account when considering a company's rate request. However, Insurance Commissioner Mike Kreidler wants authority to limit the amount of surpluses health plans can amass when considering rate hike requests, according to the Spokane Spokesman-Review.

Kreidler is specifically proposing that rate hikes not be approved when a company amasses a surplus equal to three months of claims expenses. But he wants to be able to grant exceptions to that rule if limiting a surplus or rates threatens an insurer's financial health, the Seattle Post-Intelligencer reports. The surplus proposal only would apply to non-profit health insurers, which make up most of Washington's health insurance market, according to the Insurance Journal.

"Some non-profit insurers have built up hundreds of millions of dollars in surpluses in recent years, while still seeking double-digit rate hikes," Kreidler said in a statement. "I want the law changed so we can take a closer look at that, while still maintaining a vital insurance market."

Additionally, Kreidler wants more transparency in the state insurance industry by granting consumers with a full window on insurers' rate proposals. Most information included in a rate filing is not currently releasable to the public. Washingtonians deserve to see how much of their insurance premium is spent on direct medical care vs. administrative overhead and profit, he added.

In response to the surplus proposal, Premera said it had "significant concerns" because it would destabilize the market by forcing carriers to offer products at a loss, according to the Post-Intelligencer. "Reserves are there to ensure financial stability--so health plans will be there to pay for medical costs when our members need them," Premera spokesman Eric Earling said. He added that the proposal would likely result in "dramatic rate increases" by artificially suppressing rates below actual costs, which would then prompt significant catch-up in rates to meet financial solvency requirements. "More importantly," Earling noted, "this proposal does nothing to address continually rising medical costs, which are the true driver of health plan rates."

To learn more:
- read the Seattle Post-Intelligencer article
- view the Spokane Spokesman-Review story
- see the Insurance Journal piece

Related Articles:
Massachusetts insurers had $2.6 billion surplus at year-end 2008
Seven of 10 BCS plans keep over three times required minimum surplus 
NAIC weighs in on premium rate increases and medical-loss ratios

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