"Insurers Are Sitting On Huge Cash Reserves"
Kaiser Health News’ Julie Appleby notes that nonprofit Blue Cross Blue Shield plans are sitting on huge reserves of cash even as they’re setting premium prices “above underlying inflation” and paying out smaller claims because of underutilization of care. As a result, net profit margins are increasing.
But some analysts believe that plans may take advantage of their growing margins to provide rebates to beneficiaries and aggressively price their products:
“The peak level of profitability that the industry is enjoying right now … (has) likely resulted in dozens of conversations in Blue Cross boardrooms across the county about how to deal with their unexpected windfall,” writes McDonald.
Earlier this month, Blue Shield of California announced it would cap its profits at 2 percent and issue rebates to policyholders. While McDonald doesn’t expect many other plans to do the same, he says “premium holidays” and other types of givebacks are possible. That’s particularly true in areas where Blues plans look like they won’t meet the new federal requirement of spending at least 80 percent of premium revenue on medical care and quality improvements.
Blues plans may also come in with more “aggressive premium pricing” – analyst-speak for rates set lower than expected medical cost trends – in several states, including Arizona, North Carolina, Illinois and Texas, he says.
Greater rebates would certainly provide some relief for consumers, but it’s important to remember that this is the trend throughout the health insurance industry: both nonprofit and profit insurers are filing premium increases above medical inflation while enjoying lower utilization rates. So next time you hear insurers complain that their profits are lower than those of others in the health care sector and blame high premium increases on health care reform, it would be good to remember what a good profitable time they’re now having.