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Wednesday, July 28, 2010

Nonprofit plans stockpiling a surplus of cash

Erin Kelly

Staff Writer

Most of us know what a surplus is: When you have more of something than you need. And you’re probably wondering what that has to do with health care? According to a new report by the Consumer Union, seven out of 10 of Blue Cross Blue Shield’s nonprofit plans that were studied in a sample have been stockpiling a surplus of cash, all the while continuing to significantly increase premiums for many consumers in the private market.

When it comes to insurance plans, a surplus is essentially the amount of money an insurance company raises through premiums, minus what it pays out for medical and administrative costs. All health plans are required to have a certain amount of money in surplus to ensure that if they incur any unexpected costs, it won’t put the plan out of business.

However, according to the Consumers Union report, these plans have been maintaining surpluses that surpass the minimum amount required by law and the minimum amount required by the Blue Cross and Blue Shield Association. At first glance it might appear that’s a financially responsible thing to do, but consider this: while the surplus grew and grew, many consumers’ premiums were hiked—and by a lot.

In Arizona, Blue Cross Blue Shield,

…raised rates for its individual market customers between… 8.8% and 18.4% in 2009. From 2007 to 2009, the company grew surplus from $648.3 million to $717.1 million, an amount more than seven times the regulatory minimum.

And while every plan is required to maintain a minimum surplus, only a few states have set limits on just how much surplus a plan can set aside. This means that, for the most part, nonprofit plans can continue to build their surplus, while charging consumers more and more in premiums each year.

One out of every three consumers in the private individual market is insured through a Blue Cross Blue Shield plan, so regulating these companies’ premiums and surplus is very important.. Supposedly, nonprofit insurance plans differ from for-profit insurance plans in that they are designed so that the profits “must be used for the benefit of their members or the community-at-large.”

But with extravagant surpluses coupled with high rate hikes, it’s hard to believe that these plans are really trying to benefit their customers.