Vermont’s health care advocate is protesting a state decision that will allow Vermont’s biggest insurer to retain more surplus funding, saying it happened without proper public scrutiny and could raise premiums for consumers.
The Office of the Health Care Advocate says the state Department of Financial Regulation’s ruling on Blue Cross and Blue Shield of Vermont should be rescinded pending further, independent analysis of the insurer’s finances.
The department’s decision-making process “gives the impression that (Blue Cross) was able to essentially drive its own regulation through collaboration with its regulator outside of public view and without public input,” the chief health care advocate, Mike Fisher, wrote in a Monday letter to DFR Commissioner Mike Pieciak.
Pieciak responded on Tuesday, saying the Blue Cross order is reasonable and the health care advocate is “misguided in presuming the process was flawed.”
“I stand by (the department’s) actions, which were based on a thorough, independent and unbiased review and resulted in a decision that protects Vermonters,” Pieciak wrote.
The commissioner added that state statute did not require his department’s deliberations to be subject to public scrutiny.
The dispute is a variation on a common theme: As health care costs continue to rise, there’s constant tension among insurers, health care providers, regulators and consumers.
Those tensions were on display last summer as the Green Mountain Care Board considered Blue Cross’ request to raise rates for 2019. Picketers called for an end to rate hikes; the care board decided to cut Blue Cross’ proposal; and the insurer complained that the board’s “systematic underfunding” had depleted its reserves.
The latest issue hinges on a more obscure aspect of insurance regulation.
The state Department of Financial Regulation oversees matters of insurer solvency, and Blue Cross asked the department for re-evaluation of its “risk-based capital range” – a complex measurement that determines how much money an insurance company should have to adequately support its operations and cover its potential risks.
A report prepared by a Blue Cross consultant for DFR said maintaining adequate surplus funding is “crucial for the sustainability and operating ability of insurance organizations.”
“As organizations who are primarily in the business of accepting risk, insurance companies require a sufficient level of surplus funds to assure that obligations to consumers can be met and that such organizations have the financial strength to withstand volatility and fluctuation in a competitive market environment,” the report said.
Blue Cross had been working since 2011 with a risk-based capital range of 500 percent to 700 percent. The insurer asked the Department of Financial Regulation to raise that range 590 percent to 745 percent.
“There’s not a specific schedule for reviewing (risk-based capital), but the reason for this review is that the health insurance marketplace has changed so dramatically since the last one,” Blue Cross spokesperson Sara Teachout said in an interview Tuesday.
Those changes include federal passage of the Affordable Care Act; state implementation of the all-payer reform project; and “just the general volatility of the federal government in the marketplace,” Teachout said.
Blue Cross’ consultant cited other factors that complicate the insurer’s financial picture, including the relatively small market size of Vermont as well as “a more challenging than average regulatory environment.”
Blue Cross found a receptive audience at the Department of Financial Regulation, where Pieciak has been expressing concern about the insurer’s financial position.
In a letter to the care board last year, Pieciak wrote that Blue Cross’ risk-based capital ratio “has been in decline since 2014, is approaching the bottom of the company’s targeted range and is at its lowest point since the establishment of the Green Mountain Care Board.”
Pieciak also warned the care board last year that “any downward adjustments (to Blue Cross rates) that are not actuarially supported will likely erode (the insurer’s) surplus and negatively impact its solvency over time.”
So it’s no surprise that, earlier this month, the department agreed with Blue Cross’ request for an increase in its risk-based capital range. In effect, the department is saying Blue Cross can carry more surplus funding.
The decision means that, “due to the changes in the marketplace, we should have a higher level of reserves to put us in a better place in the future,” Teachout said.
The department says Blue Cross’ request was “reasonable and appropriate” and well in line with insurer finances in other markets. But it doesn’t sit well with the health care advocate, who is concerned that Vermont consumers eventually will foot the bill.
“In our view, there has been no convincing evidence that (Blue Cross’) current capital surplus range threatens its solvency,” Fisher wrote in his letter to Pieciak. “At the same time, there is ample evidence that health insurance in Vermont is unaffordable.”
The department’s order “will only exacerbate the retention of capital surplus that Vermonters will pay for through increased premium prices,” Fisher wrote.
In an interview, Fisher said he’s not opposed to Blue Cross “having an appropriate operating surplus.”
“We want them to be strong,” Fisher said. “But we have real concerns about them holding too much.”
When health insurers present their annual rate requests to the Care Board, the amount of revenue going to reserves is among the factors that can contribute to a rate increase.
But Teachout said the department’s order won’t automatically lead to higher premiums. Blue Cross proposes an annual contribution to its reserve funding “that we believe will keep us in a good place over time,” she said. “The goal is to be steady.”
The health care advocate also took issue with how the department arrived at its decision. The advocate’s office, “the Green Mountain Care Board and the public were not given the opportunity to provide input on this decision that will affect Vermont ratepayers for years to come,” Fisher wrote.
Pieciak said public deliberation was not required because “solvency matters are properly vested by law with the department and are not subject to public notice and comment.”
He also said the department notified the Green Mountain Care Board about the risk-based capital matter before a decision was issued. And Pieciak said the department “acted transparently” by releasing the review and analysis of its own actuary in the case.
“The department acted in accordance with Vermont statute …, its accreditation standards and accepted actuarial standards in reviewing (Blue Cross’) request and issuing the order,” Pieciak wrote.
Furthermore, Pieciak said his department’s ruling doesn’t usurp the care board’s authority in setting Blue Cross’ rates each year. That process, he said, “will continue to be subject to public notice and comment.”
The department’s order will be a factor that the care board considers when weighing Blue Cross’ future rate proposals. But Green Mountain Care Board Chairman Kevin Mullin declined to speculate on the impact of the department’s decision.
The Department of Financial Regulation “has been given the statutory authority to set solvency, and it would be unfair for us to comment on a (department) decision,” Mullin said Tuesday.
