Is Consumers Union Right?

The local newspapers have picked up a report from Consumers Union critical of the cash reserves of some health plans. The report gives surplus figures for the past 8 years. An attempt was made to associate these cash reserves to rate increases, but one suspects that if one does the math, overall health care expenditures are such that cash reserves, no matter how high - would be quickly depleted. More relevant, perhaps, is the relationship of the cash expenditures over time with covered lives, rates, and other factors.

The health plans, in turn, have responded both in terms of accounting at the state level and the higher cash needs in light of health care reform. Who is right? Can one tell now?

• Follow this link to a pdf of the report

Here are the first few paragraphs

In the last decade, nonprofit Blue Cross and Blue Shield (BCBS) plans have set aside billions of dollars in surplus, even as they raised rates for many customers. Surplus is the excess of a company's assets over liabilities – essentially a health plan's retained profits—which plans hold to protect the company and its policyholders and providers from financial losses. Nonprofit BCBS plans, including community-owned charitable plans and subscriber-owned mutual plans, held more than $32 billion in surplus at the end of 2008.

Those surplus funds are built primarily with consumers' premium dollars, and insurers typically include a targeted contribution to surplus in rate increases. Surplus can be used to moderate premium increases, yet we found that some financially strong BCBS plans with large surpluses have continued to seek double-digit rate increases.

In 2009, BCBS of TN is said to have cash of $1.1b; BCBS of Michigan has $2.5b.