Group urges states to cap reserves

NATIONAL REPORTS-Conventional wisdom says families should set aside an emergency fund for unexpected expenses, however, one consumer group is recommending that health insurers' emergency funds should be "rigorously" examined.

Consumers Union, the advocacy group based in Yonkers, N.Y., sent a report to state insurance commissioners in July, calling into question the amount of surplus held by not-for-profit Blue Cross Blue Shield plans. The group examined 10 plans and compared amassed surplus against each of the plans' regulatory minimums required for solvency protection.

According to "How Much is Too Much?" seven of the 10 plans held more than three times the required minimum reserves, which the report implies is "excessive." However, industry actuaries caution that regulatory minimums certainly aren't meant to be functional amounts of surplus.

In 1998, the National Association of Insurance Commissioners (NAIC) created the risk-based-capital (RBC) model to establish minimum reserves related to each insurer's unique exposure to risk. Various levels of RBC-expressed as a percentage, with 100% being the minimum-can result in corrective action. For example, with reserves below 100% RBC, regulators can take control of the company. At or above 200% RBC, no action is needed.

RBC levels are meant to monitor solvency, which protects consumers.

Sondra Roberto, staff attorney, Consumers Union, told MHE in an email she agrees that solvency protection is in the interest of consumers and that the group is not suggesting that a 200% RBC standard should serve as a maximum amount of surplus, even though in the press release announcing the report, she specifically says insurers are "hoarding such huge surpluses."

Applying the RBC, the report shows not-for-profit Blues hold a wide range of reserves, Roberto says. For example, the 2009 RBC ratio for Excellus BlueCross BlueShield in New York was 542%, but for Blue Cross Blue Shield of Arizona, it was 1,455%.