State Will Consider Size of Blue Cross of California Reserve Fund
The Department of Managed Health Care on Tuesday said it will examine the amount Blue Cross of California holds in reserve funds as part of DMHC's investigation of recent premium increases by the insurer, the Los Angeles Times reports. Some Blue Cross members and consumer advocates allege that the insurer increased premiums to help finance the merger of Blue Cross parent organization WellPoint Health Networks with Anthem.
Blue Cross documents filed with the state on Monday indicated that the insurer had capital reserves of $1.7 billion as of March 31, 2005, about five times the amount required by law. Under state rules to protect against insolvency, Blue Cross is required to maintain $307 million in reserve.
DMHC Director Cindy Ehnes said, "Consumers looking at these kinds of reserves have the question: 'Why is a rate increase needed?' So it will certainly be part of our investigation."
Blue Cross spokesperson Michael Chee said the reserve fund is important to the company's "long-term financial stability." He added, "We sympathize with consumers' point of view -- it's difficult to understand the various factors of financing health care."
According to the Times, California does not limit the amount of money an insurer can hold in reserve, and it is not uncommon for companies to maintain reserves that exceed the minimum requirement set by state rules.
State records show that Kaiser Permanente maintains $10.2 billion in reserves, 13 times its required amount. PacifiCare Health System's reserve of $462.8 million is about five times the amount the state requires of that insurer, and Health Net's $317 million reserve is about twice the amount required of it under state rules.
Health Net spokesperson David Olson said large reserves are "standard practice." He added, "We're getting pressured by the rating agencies to have higher levels of reserve to get better ratings on our debt and lower borrowing cost."
Adam Miller, a health care analyst with Williams Capital Group, said, "It's a fine balancing act. What the appropriate level [of reserves] is -- there's still a lot of debate" (Vrana, Los Angeles Times, 5/18).