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July 2008

Regulating the Reserves of Non-Profit Insurance Plans

Both Colorado and the District of Columbia have been grappling with the issue of insurance carrier reserves in recent months, with Colorado coming to an agreement with Kaiser Permanente Colorado and the Attorney General of the District of Columbia filing suit against CareFirst, Inc and its D.C.-based BlueCross/BlueShield affiliate. Each of the plans in question is registered as a non-profit in their respective states.

Kaiser Permanente Colorado agreed to give back $155 million out of $500 million in reserves to Kaiser members in the form of reduced premiums, enhanced benefits, and increased assistance to low-income members. They reached this agreement with Governor Bill Ritter and Insurance Commissioner Marcy Morrison after the commissioner threatened to conduct in-depth public hearings about the financial status of the insurance carrier. State officials have the obligation to conduct these inquiries based on a Colorado law that requires the Insurance Commissioner to review the necessity of rate increases. Colorado regulators were concerned that reserves were being sent to a California affiliate of Kaiser Permanente.

The D.C. Attorney General has charged that the reserves of CareFirst, Inc. exceed what is necessary and that the company is not fulfilling its obligations as a non-profit organization in the District. The surplus is $754 million, $200 million more that the amount recommended by the BlueCross BlueShield Association. The company has policyholders in several jurisdictions, but only a portion of the company’s assets are due to premiums from the District customers. The lawsuit comes after the breakdown of talks between D.C. officials and CareFirst about the possibility of using the reserves to help fund “Healthy DC,” a program to help moderate-income D.C. residents purchase insurance using a sliding-scale premium subsidy.

For additional background information on this issue, see “The Pennsylvania Community Health Reinvestment Agreement: Establishing Non-Profit Insurers' Community Benefit Obligations.” This State Coverage Initiatives publication outlines the issues related to regulating the reserves of non-profit health plans and outlines and innovative agreement reached between the plans and the state of Pennsylvania.