Judge Denies Rate Hike Due to Health Insurer’s $2.4 Billion Surplus

Not-for-profit Blue Cross Blue Shield of Michigan’s effort to push through a 24 percent to 42 percent rate hike on individual plan holders was stymied by a judge last week, in part because the insurer has a $2.4 billion cash reserve.

Calling the surplus “very high by any standards”, Administrative Judge David Lick ruled that the insurer was not justified in raising its rates by that amount, the Detroit Free Press reported.

“People and subscribers should receive the entire benefit of the power and financial position” of the insurer, the Free Press reported Lick saying. He added that the reserve amount should “be considered whether or not the rates should be modified.”

Experts say Lick’s ruling could have broader implications for the state’s businesses and 4.6 million residents with BCBC coverage. A rate hike, however, may not be ruled out entirely. If Michigan’s Office of Financial and Insurance Regulation upholds Lick’s decision, it may lead to smaller rate increases than the 24 to 42 percent increase originally proposed by BCBS for about 22,000 consumers, the newspaper reported.

In 2007, BCBS was allowed 10 to 19 percent rate increases on individual plan holders that took affect on June 1, 2007 and will run through May 31 of this year. BCBS, however, said it is losing money on individual plan policies. It also told the Free Press that its reserves fall within the maximum allowed by the state of Michigan and are needed for possible emergency use.

BCBS has 30 days to object in writing to Lick’s ruling, which was made in a case brought by a Livonia couple who challenged a rate hike in 2006.

Nonetheless, Joe Aoun, the attorney for the Livonia couple, told the Free Press, that Lick “never lost sight of the fact that Blue Cross has a duty to make coverage affordable and that, as a nonprofit, it is accountable for how it uses its surplus. Instead of reaching its hands into the people's pockets and trying to raise rates another 24%, Blue Cross is expected to use its surplus -- which was found to be excessive -- to lower premiums."