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Read Making a Killing

home / healthcare / press releases

NEWS RELEASE
Dec 05, 2002


CONTACT: Jerry Flanagan - (415) 633-1320

California Data Shows HMOs Hold $2.2 Billion In Excess Cash Reserves While Premiums Increase 20%

FTCR Calls For 'Prior Approval' of HMO Rates
New data released today shows that although HMOs have $2.2 billion in excess cash reserves they have dramatically increased costs to employers and consumers, according to the Foundation for Taxpayer and Consumer Rights (FTCR).

The California Department of Managed Health Care (DMHC) reports that 5 HMOs have more than twice the state required reserves on-hand, a measurement called Tangible Net Equity (TNE). Blue Cross and Aetna have 400% of the required amount. The state requires HMOs to maintain sufficient assets to protect enrollees from HMO bankruptcies however excess reserves may be deposited and withdrawn at will. TNE is not reported as revenue or 'cash on hand' in public reports.

"It is outrageous that HMOs continue to gouge businesses and consumers while they hoard our premium dollars," said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights. "HMOs cry poverty on the one hand and with the other they pick the pockets of consumers. HMOs should be required to get prior approval for rate increases similar to systems in place for the auto and home insurance markets."

According to the National Association of Insurance Commissioners (NAIC) 26 states require a 'prior approval' system for HMO rate increases.

"California is a second-class citizen in the world of HMO rate oversight," said Flanagan.

Premiums, co-payments, and deductibles have increased 20-30% for consumers and employers this year over 2001 levels. As result, consumers will have to pay more out-of-pocket for medical coverage and may loose coverage altogether as employers are forced to dropped benefits. FTCR will pursue state legislation in 2003 to require a 'prior approval' system for HMOs. Prior approval would authorize an independent regulator to review an HMO's financial health and deny rate increases if they are deemed excessive or unnecessary. Prior approval systems have effectively controlled rate increases in home and auto insurance markets.

According to data extrapolated from quarterly reports submitted to the Department of Managed Health Care (DMHC) on September 30th, 5 HMOs have a total of $2.2 billion in excess Tangible Net Equity (TNE). The DMHC requires that HMOs maintain a net equity of $1 million adjusted based on an HMO's total annual revenues and expenditures.

The five HMOs which have 2 to 4 times the required reserves are: Kaiser Foundation, Blue Cross, Health Net, Blue Shield and California Physicians'.

"Insurers use TNE to obscure how much cash they have," said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights. "It's a hidden slush fund for money hungry HMOs."

The landmark auto insurance reform initiative championed by FTCR's Harvey Rosenfield in 1988 established a 'prior approval' system for car insurance premiums. That ballot initiative, Proposition 103, protects consumers with a simple mandate: "No rate shall be approved or remain in effect which is excessive, inadequate, or unfairly discriminatory." As a result of Proposition 103, the Department of Insurance has the authority to deny rate increases. Such a system for health care would help to stabilize health insurance premiums and protect consumers and employers from skyrocketing premiums.

Milliman USA, a leading business consulting company, recently completed its annual survey on employer health-care costs, estimating that HMO costs will rise approximately 20% in 2003. According to the 2002 HMO Intercompany Rate Survey, HMO premiums for employers rose 16% to 22% in 2002. Small employers and consumers with individual insurance policies can expect 30% and higher increases for premiums, co-payments and deductibles (October 23, 2002, Business Week, "Health-Care Costs: The Painful Truth").

"The only thing that the free market has done for health care is given HMOs the freedom to raise rates beyond the reach of average consumers. State regulators should examine unfair rate setting in HMO premiums," said Flanagan.

A new report released by the Kaiser Family Foundation and the Health Research and Educational Trust (HRET) found that out-of-pocket health care costs have increased 27% over 2001 levels for some employees. A recent census showed that the largest increase in uninsured rates occurred for families whose household incomes exceeded $75,000.

For more information on the Foundation for Taxpayer and Consumer Rights visit www.consumerwatchdog.org.

The Kaiser/HRET report is available online at www.kff.org/content/2002/20020905a.

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