Health insurer CareFirst and one of its regional subsidiaries do not have excessive surplus and efforts to divide those funds could prove detrimental, according to a new report.

The Maryland Insurance Administration released on Nov. 4 an analysis, performed by financial consulting firm The Invotex Group, reviewing the surplus of Owings Mills, Md.-based CareFirst and its Group Hospitalization and Medical Services Inc. subsidiary.

The report is the culmination of nearly a year of review by state regulators into whether the non-profit insurer’s reserve levels are excessive and how to better monitor insurer surplus overall. An MIA hearing on the matter is scheduled for Nov. 19.

GHMSI, with a current reserve of $687 million, covers about 150,000 policyholders in the District, 700,000 in Maryland and 300,000 in Northern Virginia, the report said.

The report finds that neither CareFirst of Maryland nor GHMSI have excessive surplus with $394 million and $687 million in reserves, respectively. In comparison with nine other mid-sized, nonprofit, national Blue Cross or Blue Shield affiliates, including Pennsylvania-based Independence Blue Cross and Capital Blue Cross, Invotex found that GHMSI’s reserve levels were at the higher end of the range and CareFirst’s were at the lower end.

Tyler’s take

Speaking before members of the Independent Insurance Agents of Maryland on the same day as the report’s release, Maryland Insurance Commissioner Ralph S. Tyler called CareFirst “the most significant company we [the MIA] have regulatory responsibility” over.

Ralph S. Tyler

Tyler added there is the belief that there is “no such thing as too much surplus,” as more surplus means more consumer protection, but it also means at some point, people were charged rates that were too high.  At the other end of the spectrum, Tyler said, if an insurer’s surplus it too low, the company could be at risk.

“What I’d stress is that this is an important topic because this is a company that provides health care coverage to about 50% of the people in our state that have coverage and its solvency is tremendously important to them and to all of us,” Tyler said. “At the same time, its rates are tremendously important.”

Report recommendations

While Invotex validated an approach to determine reserve levels by CareFirst’s actuarial firm – Milliman – as “reasonable,” it recommended that the MIA implement ranges that it called “lower and tighter.” It also recommended regulators evaluate the insurer’s reserve levels every three years to five years, unless “unusual events or circumstances” arise.

“For example, once the outcome of national health care reform efforts is known, an updates or supplemental analysis may be warranted,” according to the report.

Invotex also made several other recommendations to the MIA in its report on possible changes to its regulations on defining the surplus review process with the state’s nonprofit health service plans.

The outcomes of the review in Maryland are of great interest in Washington, D.C., where the District’s Department of Insurance, Banking and Securities held hearings in September on GHMSI’s reserve levels.  D.C.’s regulators have delayed their decision on the matter until the end of the year to review the Invotex report and its findings.

Under D.C. law, if insurance regulators determine the surplus as “unreasonably large,” CareFirst must come up with a plan to redistribute funds among its subscribers in Maryland, Virginia and the District.

The Invotex report calls that apportionment of funds “attributable” to each jurisdiction “a concept that has no financial meaning, applicability or relevance and should be reconsidered.”

“Any effort by one jurisdiction …to apportion surplus and use the company’s assets for purposes unrelated to the claims of existing contract holders will, by definition, lower the surplus of the entity as a whole and, to that extent, leave the contract holders in [Maryland, the District and Virginia] less protected than they were before,” Invotex concludes.