March 11--As the surplus funds held in reserve by the state's nonprofit HMOs continue to grow, so too have the questions at the state Capitol about just how much they should store away.
Rep. Carolyn Laine, DFL-Columbia Heights, was among those asking at a Valentine's Day hearing in the state House why the health plans keep amassing so much money.
"Up and up and up and up" is how Laine described the surplus funds since the state removed a cap in 2004. She has thought a cap on the health plans' financial reserves has been necessary since.
About a week later, U.S. Rep. Michele Bachmann, R-Minn., helped make the scrutiny bipartisan at a Capitol news conference. While she didn't mention a cap, Bachmann prominently mentioned the "massive reserves that are accumulating by four Minnesota nonprofit HMOs."
State records show that from 2006 to 2010, the collective total for reserves at the state's four largest health plans increased from $1.82 billion to $2.48 billion. While that might seem high, insurers say, the sums make sense considering the relentless growth in health costs.
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Despite all the talk, legislative leaders don't sound like they're ready to jump in this session with bills to impose a cap.
"I get a little concerned that everybody gets into a witch-hunt mode," said state Rep. Steve Gottwalt, R-St. Cloud, chairman of the Health and Human Services Reform committee. "If there's some indication that reserves are too generous...let's get the data, let's make sure
that's the case and then let's figure out what to do."
Gottwalt has introduced a bill to require third-party audits of the health plans. It's been passed out of one committee in the House; a companion bill in the state Senate is set to be heard this week. But neither bill mentions a cap. They more generally address the issue of health plan financial transparency, which is the subject that brought Bachmann to the Capitol last month.
"Some appropriate level of reserve is necessary," said state Sen. Sean Nienow, R-Cambridge, who sponsored the HMO audits bill in the Senate. "But the question is: What is truly necessary? And is there a point where it gets to be completely superfluous?"
When regulators talk about health plan reserves, they use a term called "risk-based capital" to describe the funds that insurers must hold to guard against insolvency.
Health plans get in hot water with regulators when their reserves are less than twice -- or 200 percent -- of the authorized control level for their risk-based capital.
At the end of 2010, this 200 percent standard worked out to about $800 million collectively for Blue Cross and Blue Shield of Minnesota, HealthPartners, Medica and UCare.
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State records show that, in recent years, both the risk-based capital calculations as well as health plan reserves have been growing in tandem. That's because health care costs keep growing, said Julie Brunner, executive director of the Minnesota Council of Health Plans, a trade group for HMOs.
Insurers need big reserves so they can still pay the bills if there's an unexpected spike in claims, Brunner said.
"The main objective of reserves is to protect consumers," Brunner said. "In the '80s, Minnesota had health plans that became insolvent and left consumers without coverage. We do not want to create an environment where that could happen again."
Collective Reserves hit $2.48 billion
At the end of 2010, the collective reserves of the four largest nonprofit health plans in Minnesota were $2.48 billion, or more than 600 percent of risk-based capital.
That's the level at which reserves begin to raise "red flags," said Sondra Roberto of Consumers Union, a California-based consumer group that has published reports on reserves at nonprofit health insurers.
"We understand the need for a cushion," Roberto said. "But regulators need to take a closer look and make sure the company is following its mission and not compiling unnecessary surpluses."
Some in the Legislature share the concern.
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Rep. Jim Abeler, R-Anoka, said he thinks a cap in the neighborhood of 500 percent of risk-based capital might be appropriate -- at least for reserves derived from state public programs. People enrolled in public programs receive coverage through HMOs, but the $2.48 billion reserve figure includes surplus funds held by both the health plans' HMOs as well as their insurance company subsidiaries.
Laine, the DFLer from Columbia Heights, said she thought such a cap would be "too generous" and suggested that a limit at 400 percent of risk-based capital might work.
But in response to Laine's suggestion during the Valentine's Day hearing in the House of Representatives, a state Commerce Department official cautioned against such an approach.
A cap at 400 percent of risk-based capital might work some years, testified Julia Philips, an actuary with the state. But during other years, there could be a surprise such as an influenza outbreak or some other calamity that would leave the health plans short.
"You can say, you know, they shouldn't have too much -- and I totally agree with that," Philips testified. "However, we don't really know how much is too much."
At Minneapolis-based UCare, officials say they try to keep reserves around 450 percent to 500 percent of risk-based capital. That worked out to about $280 million at the end of 2010.
But the state should not set a cap at that level because health plans need flexibility -- not just for unforeseen health emergencies but also to deal with sudden membership increases, said Beth Monsrud, the chief financial officer at UCare.
Limit Lifted in 2004
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Up until 2004, the state set an upper limit on health plan reserves at three months' worth of expenses. The old standard at UCare would work out to about 670 percent of risk-based capital today, said Ghita Worcester, the senior vice president for marketing and public affairs at UCare.
At Bloomington-based HealthPartners, chief financial officer Dave Dzuik said he could support creating a cap that's equal to between three and four months' worth of health plan expenses. That would work out to 720 percent to 960 percent of risk-based capital at HealthPartners, he said.
At Medica, officials argue there should be no cap whatsoever. The market already provides a check on ballooning reserves because a health plan that sets a high price on insurance policies in hopes of unreasonably growing its surplus won't be competitive, said Geoff Bartsh, vice president of policy at Medica.
"We don't believe that there's a reasonable limit on our ability to protect our promises to consumers," Bartsh said.
Relative to risk-based capital, Blue Cross and Blue Shield of Minnesota had the largest financial reserves among nonprofit insurers in Minnesota at the end of 2010. One Blue Cross subsidiary had reserves at 720 percent of risk-based capital, while the company's HMO had reserves at 860 percent of risk-based capital.
In total, Blue Cross had nearly $1.1 billion in reserves across the two subsidiaries -- a sum that the insurer feels is "adequate," the company said in a statement.
"It is difficult even among experienced experts to agree on one 'correct' level or range of reserves that could apply to every health insurer, as no two plans will ever have exactly the same mix of assets and risks," spokesman Jim McManus said in a statement. "This is why it is noteworthy that while all states have reserve minimums for health plans, very few states have taken steps to legislate reserve maximums."
The reserves held by Minnesota health plans weren't as high at the end of 2010 as those at several other Blue Cross health plans across the country, according to Carl McDonald, a financial analyst with Citi Investment Research & Analytics.
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In a research note published in January, McDonald calculated that the average nonprofit Blue Cross plan had reserves at 942 percent of risk-based capital at the end of 2010.
The Blue Cross and Blue Shield Association requires that member insurance companies hold reserves equal to 375 percent of risk-based capital, McDonald wrote, or nearly $20 billion.
"Therefore, from a technical perspective, we calculate the Blues have almost $30 billion in excess capital," McDonald wrote. "It provides a good perspective on just how much of a capital cushion the Blues have these days."
That's why Roberto of Consumers Union cautioned against using McDonald's numbers to conclude that reserve amounts at Minnesota health plans are reasonable.
"The average is higher than it should be," she said.
The Legislature might be unlikely to answer the question of how much is too much this session, said Jim Przybilla, chief executive officer of PrimeWest Health, an Alexandria-based organization that manages care for people in state public health insurance programs. But Przybilla has been among those at the Legislature this winter urging legislators to eventually tackle the question.
"I don't know what that number is, but I believe we need to put one in place." Przybilla said. "It has always perplexed me about why we haven't gone there."
Christopher Snowbeck can be reached at 651-228-5479. Follow him at twitter.com/chrissnowbeck.
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(c)2012 the Pioneer Press (St. Paul, Minn.)
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