A hidden reason your health care costs are going up

Health insurers, like all businesses and families for that matter, need to set some money aside to cover unexpected costs. But many non-profit insurers have amassed enormous surpluses, much higher than required by regulators, even as they raise premiums for their customers, a new Consumer Reports analysis finds.

"Plans should not be allowed to justify rate hikes by saying they need to grow their surplus if their surplus is already very large," says Dena Mendelsohn, a health policy analyst with Consumer Reports and the author of the report.

The report found that nine nonprofit Blue Cross Blue Shield carriers collectively had more than $12 billion in surplus funds last year. Some notable examples, all nonprofits:

• Wyoming's Blue Cross Blue Shield plan, which increased its surplus fund by nearly 50 percent between 2010 and 2014, amassed a surplus of $251.3 million by last year, seven times more than the required minimum and nearly four times more than the higher minimum recommended by the Blue Cross Blue Shield Association.
• Tennessee BlueCross BlueShield Plan socked away $1.7 billion, more than five times the required minimum.
• Arizona's Blue Cross Blue Shield stockpiled $1.03 billion, yet hiked its premiums every year between 2007 and 2009.
• California's Blue Shield plan, also known as the California Physicians' Service, had more than $4 billion in surplus funds in 2014. The California Franchise Tax Board has revoked the plan's state tax-exempt status, though the reasons for the revocation have not been made public.

Read more of our reports on health insurance.

Health insurance premiums are meant to cover claims, needed services, and to build up a reasonable surplus, Mendelsohn explains.  "But we haven't seen any evidence that these huge surpluses benefit consumers."

Governmental agencies can review insurance rates and premium hikes in some states, but they have limited authority to restrict stockpiling or to order insurers to spend down those surpluses. In general, regulators can't tell carriers what to do with the premiums they collect; all they can do is reject proposals to charge excessive amounts.

While carriers say the Affordable Care Act's provisions expose them to greater risk because they can no longer refuse coverage to people with preexisting conditions or limit coverage to women of childbearing age, the ACA established several programs specifically designed to shield plans from unknown risks. The act also subsidizes premiums for low- and moderate-income earners in order to broaden the risk pool and encourage young healthy people to buy insurance.

The surplus report will be distributed to advocates who review premium rates in their states and often push for more effective rate review processes.  Consumer Reports is urging policymakers and regulators, including Health and Human Services officials, to rethink how surpluses are evaluated in the context of rate hike requests and consider establishing maximum ceilings for surplus funds, not just minimum levels, and laws that allow regulatory agencies to deny rate increases or require spending down excess surpluses.

—Roni Caryn Rabin