Mike Kreidler, the Washington state insurance commissioner, is lobbying for state House Bill 1301 and state Senate Bill 5247, two versions of a measure that could affect the carriers' ability to continue to increase surplus levels.
The measure would give the state insurance commissioner explicit authority to consider a carrier's surplus level when determining whether an individual or small group health coverage rate increase request is reasonable.
"Surplus is not the same as in insurer's reserves," officials in Kreidler's office in a comment on the measure. "Reserves are required to ensure a company can pay future claims. They need healthy reserves for financial solvency. Reserves are not part of a company's surplus. Surplus is what's left over after accounting for all foreseeable future claims and expenses."
Kreidler notes that the three largest nonprofit health insurers in his state have a total of about $2.4 billion in surpluses.
Witnesses from groups such as the Association of Washington HealthcarePlans and the Washington Association of Health Underwriters have argued during hearings on the proposal that the proposal could give for-profit carriers an unfair advantage and could weaken carriers' finances at a time when they may face challenges with implementing the Patient Protection and Affordable Care Act of 2010 (PPACA), according to a summary prepared by members of the state Senate legislative staff.
Dr. Roger Stark, a health policy watcher, has written in an analyst posted by the Washington Policy Center, Seattle, that the proposal would contradict existing Washington state law, by conflicting with a statute indicating that accumulating capital over the amount required by risk-based capital requirements is desirable.
"The health insurance industry is based on assuming risks. No one can predict future health care catastrophes," Stark says. "Health insurance reserves are extremely fragile. Deterioration of the stock and bond markets could quickly lower a health insurance company’s reserves by 15% to 20%. A natural disaster or mass emergency could lower its reserves by 20% to 25% in one day."