No rebates coming for Wellmark health insurance policy-holders

Iowans who buy health insurance through Wellmark Blue Cross and Blue Shield won't be getting premium rebates anytime soon. Wellmark has a near-monopoly on Iowa's individual and employer health insurance market. After the company announced last summer that it would not participate in the state's health insurance exchange during its first year of operation, Democratic State Senators Jack Hatch and Matt McCoy questioned why the company was holding about $1.3 billion in reserves. The senators argued that the Iowa Insurance Division had previously justified Wellmark's large cash reserves on the grounds that the company would be selling policies through the health exchange created under the 2010 Affordable Care Act. Hatch and McCoy asked Iowa Insurance Commissioner Nick Gerhart to study the issue, and in November, Gerhart retained Risk and Regulatory Consulting to investigate Wellmark's reserve levels.

The consultants' report, made public yesterday, concluded that Wellmark's cash reserves are "reasonable and prudent." Click through to read the full six-page report at the end of the article by Tony Leys of the Des Moines Register.

I've enclosed below a few excerpts from Leys' report, Hatch's letter to Gerhart last July, which provides background on the issue, and the joint statement Hatch and McCoy released yesterday. They noted that Wellmark "will be using its current reserves to protect them from risks that do not exist for them; namely, the Insurance Marketplace Exchange." Hatch and McCoy added that the report "puts to rest the notion that the ACA could ever be the basis for a future premium increase by the company, at least in the next three years."

After many years of double-digit percent increases in health insurance premiums, Wellmark did not raise premiums for many of its individual customers this year, presumably to deter them from shopping for a better deal on Iowa's exchange. I predict Wellmark will cite the 2010 health care reform law as an excuse for raising premiums again before too long. Iowa individuals and families can purchase policies on the exchange from either Coventry or Co-Oportunity Health. Only Co-Oportunity is selling employer health insurance plans through Iowa's exchange.

From Tony Leys' report for the Des Moines Register:

Iowa Insurance Commissioner Nick Gerhart asked for the outside review from Risk and Regulatory Consulting, a national firm based in Connecticut. Wellmark paid the $250,000 cost, as required by state regulations. Gerhart said this morning that Iowans should be assured the report gives an unbiased analysis. "This is a truly independent firm that only works for regulators," he said. "I thought it was important to pick a firm that doesn't work for any companies." [...]

Wellmark is by far the largest health-insurer in Iowa. It controls more than 80 percent of the market for individual policyholders and more than 60 percent of the market for small employers. The company provides coverage to about 1.8 million Iowans plus about 300,000 South Dakotans. Wellmark leaders note that they pay about $5 billion in medical claims annually, and they say the $1.3 billion in reserves represents about three months' worth of expenses. [...]

Hatch has contended that Wellmark sidestepped significant risk by declining to participate this year in a new online health-insurance marketplace set up under the federal Affordable Care Act, although the company has said it will participate next year and that it faces other costs related to the new law.

Last week, Hatch introduced a bill that would give the insurance commissioner power to order refunds or take other steps if a health-insurance company's reserves were found to be excessive. Hatch's bill was approved by Democrats controlling the Senate Commerce Committee. During that meeting, Hatch also expressed concerns that Wellmark could use its large bank account to artificially hold down premiums for a year or two to prevent new competitors from gaining a foothold in the Iowa market.

Letter from State Senator Jack Hatch to Iowa Insurance Commissioner Nick Gerhart:

July 8,2013

Mr. Nick Gerhart

Commissioner, Iowa Insurance Division

330 Maple Street

Des Moines, IA 503 19-0065

In re: Status of Wellmark surplus and reserves - 2013

Dear Commissioner Gerhart:

I write on behalf of Iowa insurance consumers with concerns about Iowa's largest insurance provider, Wellmark Blue Cross and Blue Shield of Iowa. The company recently announced it will not offer Iowans insurance coverage as part of the health insurance exchange Iowa will begin operating in partnership with the federal government in 2014.

The concern I raise is related to reserves and surplus being held by the company, which total approximately $1.3 billion. My understanding is that a report was completed by the Iowa  Insurance Division in 2011 finding the level of reserves and surplus was appropriate. This report also concluded the new federal health care law, the Affordable Care Act, provided much of the justification for the reserves and surplus. Specifically, the issue of participation in the health insurance exchange was listed as one of the factors driving the company's need to hold the $1.3 billion.

In relevant part the report provided:

"While it is not currently possible to determine an amount of increased surplus relating to the PPACA reforms, it is clear that more surplus would be required, not less." Factors identified as driving the need for more surplus associated with the Affordable Care Act included: minimum loss ratio standards with related

rebate requirements, health insurance exchanges, taxation changes to support health care reform and the potential business impact of state-based cooperatives."

The company's decision to decline participation in Iowa's partnership exchange removes a major component of its justification for holding reserves and surplus. Since the state requires a reserve account of approximately $350 million, it would appear to me that Wellmark's reserve is nearly 400% higher than required..

I am requesting a new report be commissioned, completed, submitted to legislators and made available to lowans at your earliest possible convenience. The funds in question are the property of the policy holders of Wellmark. They are Iowa taxpayers who have paid into the $1.3 billion surplus. They deserve to know the reason that money is being kept from them. It is my position that a sufficient basis exists at this time to return that portion of the reserve that is no longer required to the lowans who have contributed to it.

Health insurance premiums are high enough without families having to add money to Wellmark's books. The company would appear to be financially healthy and prepared to meet the needs of its policyholders. It is time some of its reserves and surplus funds be returned to lowans in the form of premium rebates.

In addition, consumers are also losing any leverage their premiums generate by not having the insurers investment income included in their final premium rate calculation. Is it true that you are not allowed, by statute, to consider an insurer's investment income toward their future premium rate increases? Would it be advisable for you as commissioner to have authority from the legislature to include investments being held by a company when analyzing the need for a rate increase?

I strongly believe that it makes sense to count all of a company's holdings when taking into account the need for additional consumer contribution to their insurance? It would appear Iowa

law in this area could use an update. I would be interested in your analysis and input on this matter.

Thank you for your consideration and I look forward to receiving the information requested herein.

Very truly yours,

Cc: Senator Matt McCoy

February 26, 2014 statement:

Joint Statement by

Senators Hatch and McCoy on Wellmark Reserves

The report validates Wellmark's forceful attempt to protect its current massive surplus against the risks of the Affordable Care Act.

The review of Wellmark's capital and surplus levels is a report mired in contradictions.  The report identifies a transitional, risk period of 2014-2017 due to the implementation of the Affordable Care Act even though the risks in Iowa are substantially low given Iowa's effective implementation and that several insurance co-ops and carriers did their due diligence and knew Iowa was a quality, low-risk marketplace.

In plain language this means Wellmark wants to protect itself from any changes that might occur in the industry - consumers choosing other providers, costs associated with the inability to legally deny claims, to name two - and guarantee its solvency for at least 3 more years.

While Iowa consumers, small businesses and government all adjust to the costs and requirements of the ACA, Wellmark will be using its current reserves to protect them from risks that do not exist for them; namely, the Insurance Marketplace Exchange.

This would be acceptable for Iowa consumers if the "transition period" of 2014-201 also included a guarantee there would be no premium increases during that period of time.  Further, it puts to rest the notion that the ACA could ever be the basis for a future premium increase by the company, at least in the next three years.

Wellmark is a monopoly in a market that controls Iowan's access to affordable, effective health insurance. Wellmark has amassed a fortune of $1.2 billion dollars and the report while attempting to discuss unrealizable risks emphasizes that Wellmark "has more liquidity relative to surplus than most health entities" and "it appears the Company operates a sophisticated investment management function and substantial  changes to the portfolio would not be necessary unless unprecedented or drastic market events occur" which most likely will never occur.

We encourage stronger consumer oriented oversight of this monopoly provider and other insurance providers to protect sick and healthy Iowans as they seek affordable health insurance and coverage.

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