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Pennsylvania Insurance Commissioner Diane Koken earlier this month approved the reserve and surplus levels maintained by the states four Blue Cross-Blue Shield plans, but at least one Blue has expressed unhappiness with the ruling.

And some groups representing consumers and employers condemned Kokens ruling, calling the surplus levels she set too high. They argued in public hearings held by the insurance department that the companies should reduce their surpluses by cutting health care premiums paid by employers and individuals. They also charged that the ruling was part of a behind-the-scenes deal between the Blues and the governors office.

In financial terminology, a surplus is the difference between a companys assets and its liabilities.

The BluesHighmark Inc., Pittsburgh; Independence Blue Cross, Philadelphia; Capital Blue Cross, Harrisburg; and Blue Cross of Northeastern Pennsylvania, Wilkes-Barrehad total surpluses of about $4 billion in 2003, according to the DOI.

Under pressure to force the companies to reduce their surpluses, the DOI developed a new model to analyze the companies surplus levels.

“The levels used in the model are lower and more stringent than any threshold for excess surplus in the country based on risk-based capital,” Koken claimed in announcing her decision. “Our analysis of these surplus levels was extremely thorough and truly unprecedented in its scope.”

The findings showed no inefficient or excessive surplus for any of the four companies, Koken concluded.

“Going forward, we will continue to use our model to keep a proper check on the appropriateness of the Blue Plans surplus levels, a review that will occur as soon as the 2004 numbers are submitted next month,” Koken said.

Still, Denise S. Cesare, president and CEO of Blue Cross of Northeastern Pennsylvania, disagreed strongly with the DOI.

Setting a cap on a companys surplus “is not a remedy for all that ails health care,” Cesare said. “Unfortunately, there is no magic bullet to solve all the serious issues presented in todays health care environment. Capping the surplus will harm the long-term stability of our organization without significantly benefiting those subscribers, communities and constituencies we serve.”

One of the Blues, IBC, said it was pleased that the DOI “gave this important issue a thorough and careful analysis.”

Of all four Blues, IBC fared the best. It was the only one the DOI rated as “Efficient,” meaning it was operating at the low end of the RBC ratio range the DOI rated sufficient.

Reacting angrily to the ruling, a Pittsburgh business group charged that the DOI ignored small employers and workers.

“It is clear that their interests are not an important consideration for the governor or the insurance department,” charged Cliff Shannon, president of the SMC Business Councils. “The administration has abdicated its responsibility compared with other states that have taken steps to restrain prescription drug prices, reform medical malpractice lawsuit abuse, and bring more stability and fairness to the state-regulated health insurance marketplace.”


Reproduced from National Underwriter Edition, February 18, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.