The state issued a slew of reports on health care costs this week, including one on insurance company “surpluses” (pdf) – the word non-profits use to describe their profit.
On the one hand, adequate levels of surplus are essential for consumer protection and to meet obligations to health care providers. Surplus allows an insurer to withstand unanticipated financial losses, such as those caused by health care cost or utilization trends that exceed projections, unanticipated changes in the financial markets or economy, changes in regulatory requirements, or new demands from purchasers.
On the other hand, the accumulation of surplus by insurers could also come at the expense of the affordability of health insurance. This is particularly true in Massachusetts, where almost all of the major health insurers are non-profit entities, which means that their surplus is accumulated primarily through underwriting gains generated by premiums paid by their customers or from investment gains, rather than from the issuance of stock or other equities. Thus, while it is important for health insurers to have adequate surplus, health plan members, customers, and the public may assume higher premium costs when surplus levels become too large.
Eric Linzer, a spokesman for the Massachusetts Association of Health Plans, told the Globe that the group had not yet seen the report, but said that “four of the five major health plans experienced operating losses last year, making the need for adequate reserves all the more important.’’
But the group’s respone to the state’s investigation is included in the report.
|Table 1. Amount of Statutory Surplus ($ millions)|
|BCBS & HMO Blue||362||441||526||616||888||1,091||1,229||1,468||1,586||1,321|
|¹BCBS is shown net of HMO Blue during the time they were reported together.|