State rate cuts depleting coffers, Blue Cross says

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MONTPELIER — Blue Cross and Blue Shield of Vermont administrators say the state has engaged in "systematic underfunding" by repeatedly reducing the proposed health insurance rates.

The "unsubstantiated" cuts by the Green Mountain Care Board have had "serious, negative consequences" for the insurer's financial outlook, a company attorney wrote in a recent state filing.

Blue Cross — the state's largest health insurer — is making the argument in reaction to a recent care board decision that affects a relatively small number of Vermonters. But the company's filings also show a larger discontent with how the state's regulatory process has played out.

"Since the board became charged by the Vermont Legislature with major medical rate review, it has routinely lowered [Blue Cross] rate requests, despite the board's own actuary's opinions that [Blue Cross] rate requests were reasonable, with this decision being the most recent example," the company's filing says.

The care board has not yet responded to the contentions. But in the June 13 decision that spurred the insurer's concerns, care board members said they're required by statute to consider consumer affordability.

"Our task is to strike an appropriate balance between achieving the most affordable rates possible while also safeguarding the financial solvency of our health insurers," board members wrote.

The Green Mountain Care Board regulates health insurance rates in Vermont. The public's attention is focused mostly on the board's annual rate decision for individuals, families and small businesses that obtain their coverage via the state's health care exchange.

The board is still considering those exchange rates for 2019. Blue Cross has asked for an average 5.3 percent premium hike for next year, while MVP Health Care wants an average 6.4 percent increase.

The care board already has ruled on upcoming rates for "large group" insurance policies - plans that cater to employers with more than 100 staffers.

Blue Cross had asked for an average 11.2 percent premium increase for such plans, which cover 14,216 Vermonters. The insurer said its rate calculations are based on increased health care, drug and administrative costs, increased health care utilization rates and changes in federal law.

The state Health Care Advocate's office opposed Blue Cross' request, saying the insurer's rate filings "fail to adequately demonstrate system cost containment efforts" and "unreasonably exacerbate the health insurance affordability crisis experienced by Vermonters."

The care board apparently agreed, and reduced the Blue Cross large-group rate increase from 11.2 percent to 9.8 percent. Board members cut back the portion of the premium increase tied to administrative costs and reserve funding. The board also said Blue Cross should find a way to figure in the financial benefits of a federal tax cut, a reference to last year's repeal of the corporate alternative minimum tax, which Blue Cross has been paying. While the insurer won't see the benefits of that repeal until sometime in 2019, "we nonetheless believe that some portion of the significant anticipated benefits should be attributed to lowering member premiums" now, the board's decision says.

Blue Cross and Blue Shield has taken the relatively uncommon step of filing a motion for reconsideration of the large-group rate cut. Specifically, the insurer objects to the care board ordering a reduction in the amount Blue Cross can set aside for reserve funding.

Reserves, also known as surplus, are an important concept in the insurance industry.

In a letter filed with the care board in reference to the Blue Cross matter, state Department of Financial Regulation Commissioner Mike Pieciak wrote that "a sufficient level of surplus is a crucial piece of preserving an insurer's solvency" given regulatory uncertainties and business fluctuations.

Pieciak also wrote that the amount of surplus funding targeted by Blue Cross in this case was "reasonable and necessary for the protection of policyholders." And he warned that "any downward adjustments to the (Blue Cross) rate components that are not actuarily supported will reduce (the insurer's) surplus and over time could negatively impact its solvency."

In a separate filing, the care board's actuary said Blue Cross' proposed contributions to its reserve funds were "reasonable without being excessive." The actuary also recommended that the board approve the Blue Cross large group rate request "without modification."

The care board's decision to do otherwise, Blue Cross argues, is representative of a larger pattern of reductions that "have led to rate inadequacy" and a deterioration of the insurer's surplus funding.

Some specific numbers relative to that argument are considered confidential and are not included in public documents. But in an interview, Blue Cross spokesperson Sara Teachout said the care board's decisions have had "a negative impact on our reserves," which have declined every year since 2014.

Controlling health care costs is part of the Green Mountain Care Board mission, and board staff have touted the money they've saved consumers via insurance-rate cuts. In a recent budget presentation, officials said the board's 2018 reduction in the Blue Cross rate request for Vermont Health Connect saved $14.4 million in premium costs.

But in its motion for reconsideration, the Blue Cross argues that "systematic underfunding is not a form of cost containment."

The insurer also says its customers eventually will bear the cost of depleted surpluses. "The consequences of unsubstantiated rate cuts that lower reserves are borne by (Blue Cross) members, who contributed the funding in previous years and will be required to replenish the reserves in future years," the company's filing says.

A care board spokesman said officials couldn't comment given the ongoing regulatory proceeding with Blue Cross. The board will respond to the insurer's motion for reconsideration.

The board has support in this matter from the state Health Care Advocate's office, which opposes reconsideration. Chief Health Care Advocate Mike Fisher applauded the care board's decision to cut Blue Cross' proposed rates again.

"I appreciate that the board is continuing to put downward pressure on the cost of health care and health insurance," Fisher said.

"We are of course concerned that our health insurance carriers are healthy," he added. "We are also equally concerned that people can afford to get the care they need."

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