In what is likely to be his last act as Maryland’s insurance commissioner, Ralph S. Tyler has ruled that the reserve levels of two CareFirst subsidiaries “are neither unreasonably large nor excessive.”

Ralph S. Tyler

The Maryland Insurance Administration issued a report today (Jan. 8), adopting some of the recommendations made by its consultant, The Inovtex Group, regarding the reserve levels for CareFirst of Maryland and Group Hospitalization and Medical Services (GHMSI), two subsidiaries of Maryland’s largest non-profit health insurers.

The report establishes new surplus ranges for the insurer to use and recommends to the state’s General Assembly legislation requiring CareFirst to stay within those ranges and cooperatively revisit those ranges at least every five years.

More importantly, Tyler ruled that the $394 million in reserves for CareFirst of Maryland and the $687 million in GHMSI reserves “are neither unreasonably large nor excessive,” following a review and input from Invotex.

Regulators in Washington, D.C., recently delayed its decision on GHMSI’s reserves so it could incorporate Maryland’s findings.

GHMSI covers about 150,000 policyholders in the District, 700,000 in Maryland and 300,000 in Northern Virginia.

“The importance of this company and its unique mission in the marketplace require that we, as regulators, pay special attention to both the company’s financial stability and the affordability of its products for the protection of consumers,” Tyler said in a statement. “We have recommended to the General Assembly that this review not end here, but be mandated to be revisited at least every five years.”

In a statement to IFAwebnews.com, Owings Mills, Md.-based CareFirst said the MIA’s report “confirms” its belief that the reserves were reasonable.

“It lays out a process and structure that assures that they remain so,” the statement said. “We believe that the report presents a sound analysis that is consistent with our own internal policy on this matter and with the advice we have received from leading outside actuarial firms.”

New reserve levels

The MIA adopted Invotex’s recommendations regarding reserve levels, based on a risk-based capital (RBC) ratio – the ratio of how much capital a company actually has versus a formula calculation of the minimum capital the company needs for solvency based on its size and risk.

The MIA adopted a range of 825% to 1075% of RBC for CareFirst of Maryland and 700% to 950% of RBC for GHMSI. CareFirst of Maryland’s current reserve level of 503% falls below that range and GHMSI’s range of 845% sits in the middle, the MIA noted.

The MIA will use these target ranges and actual surplus projections in its review of proposed premium rates to “ensure long-term financial strength of these important companies,” it said in a statement to accompany the report.

By raising CareFirst of Maryland’s reserve range, the MIA noted that this would likely mean that state policyholders face “for the next few years,” premium increases above changes in health care claims costs and administrative costs.

“This is painful, but unavoidable,” the MIA noted in its report. “The goals need to be to minimize the pain as much as possible, to correct the inadequate pricing [of the insurer’s consumer-driven health plans], and to learn from this experience to avoid repetition.”

The MIA noted that last year, CareFirst of Maryland requested significant premium increases after it did not accurately price new deductible policies qualifying for health savings accounts or health reimbursement accounts.