Profit of nonprofit health insurers should be regulated
The Seattle Times editorial board supports House Bill 1301, which would give Insurance Commissioner Mike Kreidler authority to consider a not-for-profit health insurer's surplus when regulating rates in the individual and small-group markets for health insurance.
SHOULD the profit of a not-for-profit health insurer ever be the subject of regulation? It is not, in Washington. But the state's three dominant insurers — Premera, Regence and Group Health — together have piled up $2.4 billion in surplus, triple their surplus of a decade ago. A question arises of how much is enough.
This question is not about reserves — the money insurers set aside to assure customers they can pay claims. Reserves are liabilities. The surplus is equity.
How much profit a private enterprise earns, or equity it has, is generally not a public concern. But these are regulated enterprises, with no shareholders, chartered by the state for the public good.
That creates a public interest. It is made urgent by the huge increases in prices.
In the small-group market, from 2001 to 2009 average rates went up 122 percent at Group Health, 150 percent at Regence and 201 percent at Premera. In the individual market, rates went up even faster. Only part of these increases went to profit, and that is the part of interest to the state.
House Bill 1301, sponsored by Rep. Eileen Cody, D-Seattle, on behalf of Insurance Commissioner Mike Kreidler, would allow Kreidler to consider a not-for-profit health insurer's surplus when regulating its rates.
The bill applies only to the small-group and individual markets, the ones Kreidler regulates. It takes effect when a company has a surplus equal to three months of claims. Above that, Kreidler would in most cases not approve a rate increase calculated to increase the surplus.
At last calculation — Dec. 31, 2009 — Group Health's surplus was 4 months of claims, Premera's 4.5 months, and Regence's 5.25 months.
The companies testified against any penalty for piling up surplus, raising the specter of earthquakes, epidemics and President Obama's health-care reform. The first two might bite into their holdings, and the third, they said, surely would. They said they need every cent they have.
"How much is enough?" asked Rep. Kevin Van De Wege, D-Sequim.
Their answer was a thing with no defined form — something about consumers needing "strong, muscular companies." Van De Wege asked his question again, and again received vapor. We knew he would, because we have asked the question ourselves, and could not keep the answer confined to the room.
Now Kreidler is asking it. His approach is the right one, and the Legislature should give him the authority he requests.