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State to investigate health care insurance firm’s surpluses

By M. Bradford Grabowski For The 3 min read

HARRISBURG – The Pennsylvania insurance commissioner wants Blue Cross and Blue Shield companies to explain why they have amassed billion-dollar surpluses at a time when their health insurance premiums are soaring. The nonprofit Blues, which together insure more than half of the state’s residents, have amassed surpluses in excess of $3 billion. Meanwhile, subscribers’ premium rates have been rising 10 to 15 percent annually and doctors have been complaining of low reimbursements.

A public hearing will be held on Sept. 4 and 5.

Insurance Commissioner Diane Koken will ask the Blues several questions, including “How much money they have set aside to pay claims, are they adequately capitalized, how much money do they have in surplus, what are their plans for using the surplus and what are they doing to further their social mission,” said Insurance Department spokeswoman Roseanne Placey.

Hearings are routinely held, Placey said. Although lawmakers, consumers and healthcare officials have criticized the Blues’ surpluses in recent months, the upcoming hearing is not being held because state officials suspect any improprieties.

“It’s an important and interesting consumer issue,” Placey explained.

A spokeswoman for the state’s largest insurance company said her firm “welcomed the opportunity” to explain its surplus at next month’s hearing.

“In order to be an operating insurance company, one has to have a significant amount of money in reserve to ensure the company can continue insuring customers should something go wrong,” said Karen Early, of Highmark Inc. “It sounds like a lot of money, but in reality when you compare it to the volume of the business that our company does, it’s an appropriate amount of money.”

Highmark Inc., which operates Highmark Blue Cross-Shield in Western Pennsylvania and Pennsylvania Blue Shield in Northeast, Central and Southeast Pennsylvania, is the state’s largest insurer with about 5.2 million costumers.

Its $2.3 billion surplus is not excessive, Early said. Some of the money is needed to cover claims and some of the money is kept as part of a contingency fund, in case a financial disaster occurrs.

Early said premiums were increasing to keep pace with rising healthcare costs. She added that her company has not reduced payments to physicians.

Last year, the insurer barely made enough money from its policies to cover its operating costs, she said. In previous years, the company has had to subsidize its payouts by using money from its surplus. Early said the company has amassed its surplus due mostly to shrewd investment decisions.

But lawmakers, healthcare officials and consumers all have doubts.

A number of class-action lawsuits have been filed around the state seeking to force the Blues to share their wealth with their customers.

And a group of Democratic lawmakers from around the state, including State Reps. Anthony Melio of Bucks County and Lawrence Curry of Montgomery County, recently introduced legislation that would require the Blues to use their surpluses to reduce rates for subscribers and increase payouts to doctors.

“What we believe has happened is the insurance companies have continued to keep charging employers higher premiums while cutting back on reimbursements to the hospital community and building their reserves,” said Nancy Bell, vice president of healthcare finance and insurance for the Hospital & Healthsystem Association of Pennsylvania.

“We fully support appropriate reserves. We think that’s the nature of insurance companies. But we also think it’s the responsibility of the Insurance Department to make sure there are not excess reserves.”

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