DHCFP Reports, You Pay Attention. Part One of Two: Reserves
Two groundbreaking DHCFP reports issued today and yesterday will have a direct impact on health policy in Massachusetts.
The reports (Study of the Reserves and Surpluses of Health Insurers in Massachusetts and Health Care Cost Trends Final Report), together with other recent reports and several others soon to come, will feed a policy process grounded in real evidence.
Here's our take on the first of the two, yesterday's Reserves report.
The report is the first half of a detailed look at how much our major health institutions have socked away. This study covers insurers; the second part will look at hospitals. The eye-popping conclusion, that the 8 leading Massachusetts-based non-profit insurers held $2.6 billion in reserves in 2008, compared to $1.6 billion 5 years ago, is just the start. The reports places the reserve amount in a detailed context, and slices the data a number of ways.
At 226 pages, the reserves report is a graduate-level course in insurance finance theory. Lucky for us, there's a 17-page summary, and the meat of the report recommendations take up just 4 pages.
The report looks at how each health plan would fare when faced with different bad news scenarios, from bad investments to a TB or flu epidemic to a catastrophic fire in a building where many insureds worked. The carriers could each make through these events, though the solvency of some would be challenged by a terrorist strike or a combination of dire events.
In addition to looking at the Massachusetts carriers, the report examines standards in peer states. For example, in Colorado, a finding that one plan had an excessive surplus resulted in the insurer being required to return $287 per subscriber in premium credits in 2009 and 2010, as well as fund a Medical Assistance Fund for low income members to help with cost sharing. In Maryland, the insurance commissioner in July cited the rapid buildup of one insurer's reserves as one of several reasons for reducing a former CEO's severance pay in half, from $18 million to $9 million.
We think the recommendations make a lot of sense. The report recommends setting an upper limit for reserves. Current regulations set a minimum, but no maximum. No plan except UnitedHealthcare of New England currently exceeds the upper level recommended by the report, though BCBS comes close, unless it's combined with HMO Blue. Other recommendations include state guidelines on how much insurer surplus can be invested in stocks (which varies from 36% and 39% at Fallon and Tufts, to 15% and 9% at BCBS and Harvard); and requiring state oversight of self-insured business.
The report also recommends requiring plans to report much more detail on administrative expenses and medical payments. It finds that
Health plan administrative expenses have been increasing at approximately the same rate as medical trend. This rate of increase far exceeds the overall trend in consumer prices and does not appear to reflect any productivity improvements over time. Were current trends in health plan administrative expenses to moderate, this could improve the affordability of health insurance, and/or contribute to surplus growth. It is not possible to assess from existing plan information why administrative expenses are increasing faster than consumer prices.
While the report was released way past its due date, due to the complexity of the issue, we commend the Division and Hinckley, Allen & Tringale, which coordinated the report, for the final product. We look forward to part 2 covering hospitals, and to the report contributing to a serious consideration of the issues raised.