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Wednesday, September 04, 2002

By Pamela Gaynor, Post-Gazette Staff Writer

Highmark Inc. will be in the hot seat today as corporate customers, health care providers and community activists line up at a public hearing to challenge the financial reserves that the region's largest insurer has amassed.

The hearing, being held by the state Insurance Department in Harrisburg, is intended to determine whether Highmark and the state's three other Blue Cross insurers are holding onto more money than they need to maintain solvency and provide for unforeseen emergencies.

What action the Insurance Department will take, if any, hasn't yet been determined, said press secretary Rosanne Placey. "It would be premature to offer any comment about the next step at this point. Certainly, the burden of the regulator is to determine if there are ... steps" needed, she said.

Highmark and the other Blues -- Harrisburg's Capital Blue Cross, Philadelphia's Independence Blue Cross and Blue Cross of Northeastern Pennsylvania -- are expected to testify that they need the cash stockpiles, which in Highmark's case amounts to $2.3 billion, according to its annual report.

Many of the insurers' constituents, however, are prepared to forcefully argue the contrary.

Highmark executive vice president George Grode said the insurer must provide not only amounts needed to cover claims during financial downturns but also during emergencies, such as an outbreak of West Nile Virus or a smallpox threat.

But critics complain that Highmark is both understating the value of its reserves, in terms of the number of months worth of claims they would cover, and increasingly drifting away from its social mission -- providing affordable health care to the community.

Highmark's reserves "by the most fanciful estimate are $700 million over what they need," said Cliff Shannon, executive director of SMC Business Council, which helps its 8,000 member companies purchase group health insurance.

"It seems the larger the surpluses they get, the less social mission they engage in," agreed Ann Torregrossa, executive director for the Philadelphia-based Pennsylvania Health Law Project. "The affordability of health care coverage is the whole reason [the Blues plans] were created."

For decades, the reserves held by the health plans went almost unnoticed. But in recent years, skyrocketing health insurance premiums, cuts in payments to health care providers, widespread mergers among Blue Cross and Blue Shield plans across the country and the conversion of many to for-profit status have stirred disputes about who is entitled to the large amounts of money the insurers have accrued.

At least two class action lawsuits have been filed, challenging the reserves as excessive. In addition, at least one bill has been introduced in the state Legislature that would require the Blues, all of which are run as nonprofits exempt from state taxes, to use any reserves that exceed the value of three months worth of health care claims to lower premiums. Highmark said its reserves, as of June 30, were equal to 2.34 months worth of the claims it pays annually.

Determining how much the Blues should hold in reserve, however, is apt to be a murky exercise. State regulators and the Blue Cross Blue Shield Association both set minimum levels for the Blues, but neither set maximums.

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Some parties, including the Pennsylvania Medical Society, are expected to ask that regulators set a maximum to ensure that the Blues aren't hoarding cash at the expense of health care providers or consumers.

There also will be testimony that the surpluses Highmark and the state's other Blues are keeping are far beyond what peers around the country keep in reserve.

The combined value of the surpluses of the state's four Blues is "astounding," said Phyllis Mundy, one of several co-sponsors of House Bill 2708, the proposed law to limit the Blues to three months worth of reserves, in written testimony to the Insurance Department.

Based on her staff's research, their surpluses together are greater than the combined surpluses of Blues in 13 other states and the District of Columbia, whose combined population is 92 million -- nearly eight times that of Pennsylvania's 12.4 million.

Mundy also said that the reserves of the Blues in Pennsylvania are enough to cover anywhere from 6.87 months worth of claims, in the case of Capital, to 22 months worth of claims, in the case of Independence. She said Highmark's reserves were equal to 8.57 months of claims, or nearly four times the 2.34 months the insurer estimated.

Part of the difference stems from how the insurer calculates claims. Unlike Mundy's analysis, Highmark's estimate counts the claims it pays on behalf of customers for whom it serves only as an administrator. Because those clients provide the amounts they owe out-of-pocket, Highmark has no insurance liability for them.

Highmark claims it must reserve for those self-insured clients anyway, in case they go out of business.