So why the
need for increases when the insurer's pockets are overflowing? Lew
Borman, spokesperson for BCBSNC, says the issues were decided in
separate discussions. "The rate filing was an annual filing, an annual
discussion. The premium issue was separate." Premium increases, he
asserts, "are based primarily on medical trend….The active life reserves
come from 2010 and the rate filing is for 2011."
But one analyst contends the issues are, in fact, linked. The North Carolina Blues plan "apparently has excess statutory capital," says Brian Wright, an equity analyst at Collins Stewart LLC in New York. "There are two ways to reduce the excess. One way is to price premiums lower than they would be so that capital is degraded away." The problem with that method is that "consumers would get a false sense of what was actually happening with underlying health care inflation," he says. BCBSNC chose the second way to reduce excess, which is to give customers refunds on prior years' premiums. That way, Wright says, "consumers receive the same benefit on a dollar basis, but do not get the false impression that medical inflation is lower than reality."
There is some precedent for Blues plans returning excess capital to policyholders through premium givebacks. In 2003, a slowdown in the rate of increase in health care spending left many not-for-profit Blues plans with unexpectedly high reserves and brought intense scrutiny from state regulators. The result:
But one analyst contends the issues are, in fact, linked. The North Carolina Blues plan "apparently has excess statutory capital," says Brian Wright, an equity analyst at Collins Stewart LLC in New York. "There are two ways to reduce the excess. One way is to price premiums lower than they would be so that capital is degraded away." The problem with that method is that "consumers would get a false sense of what was actually happening with underlying health care inflation," he says. BCBSNC chose the second way to reduce excess, which is to give customers refunds on prior years' premiums. That way, Wright says, "consumers receive the same benefit on a dollar basis, but do not get the false impression that medical inflation is lower than reality."
There is some precedent for Blues plans returning excess capital to policyholders through premium givebacks. In 2003, a slowdown in the rate of increase in health care spending left many not-for-profit Blues plans with unexpectedly high reserves and brought intense scrutiny from state regulators. The result:
- Blue Cross & Blue Shield of Rhode Island said in October 2003 that it would distribute $21 million to customers, hospitals and other providers via premium rebates and increased reimbursements. The insurer decided to use a "rate holiday" to return $7 million to employers. Each employer group would get a 5% discount on one month's premium payment. Another $7 million would be used to increase physician reimbursement, and the last $7 million was distributed to hospitals in Rhode Island.
- BlueCross BlueShield of Tennessee said in October 2003 that it would refund $67 million in premium payments to fully insured group and individual members starting in December 2003. Any enrollees or businesses that had fully insured Tennessee Blues coverage for at least one month during 2003 were eligible to receive about 4.5% of premiums back, in the form of a check mailed in December 2003 or a credit on their statement for January 2004. The Tennessee Blues plan did not include providers in the giveback program.
- Horizon Blue Cross Blue Shield of New Jersey said in February 2004 that it would distribute $33.8 million to small businesses, $7.9 million to senior Medigap members and $8.3 million to individual enrollees under age 65. In addition, the insurer said it would commit $5 million to provide computer hardware and software to a number of New Jersey hospitals and physicians.
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