The Consumers Union "How Much is Too Much" report does not include Blue Cross Blue Shield of North Dakota (BCBSND), and it does not represent the financial position of BCBSND. There are 39 independent Blue plans, 38 of which are nonprofit. As one of those 38 nonprofits, BCBSND remains one of the most efficiently run companies in the system, with some of the lowest insurance premiums in the country.
Remaining financially safe and viable for our members is embodied in BCBSND's mission of providing access to quality health care for all North Dakotans. As a not-for-profit mutual, member-owned company, BCBSND closely manages administrative expenses, underwriting income, investments and its surplus, or reserve, levels.
Reserves are important for the safety of the company for BCBSND members and are required by both the Blue Cross and Blue Shield Association and the National Association of Insurance Commissioners. Adequate levels of reserves ensure that BCBSND can remain financially sound in the event of operational losses, sharp increases in health care spending or unexpected catastrophes like an epidemic. Reserves are especially important now given the uncertainty resulting from Patient Protection and Affordable Care Act implementation.
As of June 30, 2010, BCBSND's Risk Based Capital (RBC) was 523%, the 3rd lowest RBC in the Blues system. Reserves were $228 million–or 3 months of member claims–which equates to $540 to cover a $2 million-per-member promise of coverage. BCBSND targets a 2-4 month corridor of member claims for its reserve levels and has averaged 3.4 months of member claims over the past ten years. Additionally, in 2006, BCBSND refunded $26 million to its members, when reserves exceeded 4 months of member claims.
As a not-for-profit mutual insurance company, BCBSND also operates on a very small margin and tightly manages a net profitable bottom line. In the past ten years, BCBSND has had an overall underwriting net gain of .83%, well below national averages for any industry, and a bottom line net income of 2.4%. Therefore, the majority of growth in reserves has come from investment income.
BCBSND is also closely regulated by the North Dakota Department of Insurance (NDDOI) and is required to submit rate requests based on actuarially-sound principles and a product line's claims experience and utilization. The NDDOI reviews all rate requests and ultimately approves final rates. BCBSND strongly supports fair and accurate pricing for each product line, rather than one product line subsidizing another product line.
The basic reason BCBSND requests rate increases is because members continue to use more health care services and the cost for those services continues to increase. A startling statistic that supports BCBSND's need for rate increases is in 1999, BCBSND paid $540 million in member claims. In 2009, BCBSND paid $1.252 billion–an increase of 133% for that period.
BCBSND remains concerned about members' ability to continue to afford health care coverage and continues to collaborate with members, providers and leaders to find solutions for North Dakota for sustainable health care.
As BCBSND demonstrates, the Consumers Union report does not adequately represent the 38 nonprofit Blues plans and the required reserve levels necessary to remain safe.
Questions and Answers
Why isn't a 200% RBC level an adequate level for BCBSND?
Two hundred percent RBC is a minimum that raises red flags about a company's solvency. If BCBSND's RBC was below 200%, the state would get involved to ensure BCBSND could fulfill its obligation to pay members' claims. The company would have to submit a plan showing how it would get reserves to adequate levels.
In order to remain safe, BCBSND targets a 2-4 month corridor of member claims for its reserve levels and has averaged 3.4 months of member claims over the past ten years. Today, given our current financial position, a 200% RBC reserve level would equate to approximately 1.1 months in member claims, far below the level necessary to remain safe for our members.
What is Risk Based Capital?
Risk Based Capital is a method developed by the National Association of Insurance Commissioners to measure the minimum amount of capital that an insurance company needs to support its overall business operations. Risk Based Capital is used to set capital requirements considering the size and degree of risk taken by the insurer and is intended to indicate problems with financial weakness, rather than financial strength or excessiveness.
What are underwriting gains or losses?
Underwritings gains or losses are the profits or deficit that remain after paying claims and expenses.
