Government Control of the Health Insurance Industry

January 8, 2013

Washington State Insurance Commissioner Kreidler has recently again proposed limiting the amount of financial surplus the non-profit health insurance carriers can have on hand. Premera and Regence now each have over $1 billion set aside to cover medical claims. Kreidler wants legislation to limit the amount of money the carriers can retain and wants fewer premium increases.

The reality, however, is that state government regulations and laws dictate what benefits insurance companies must cover. Also, starting in 2014, ObamaCare requires insurance companies to cover anyone regardless of pre-existing illness and also mandates that everyone pay essentially the same premium price for insurance.

Health insurance companies have been raising premium rates and increasing surpluses because the financial impact of guaranteed issue and community rating are unknown. The companies anticipate a substantial increase in costs, but have no way to predict the exact amount of those increases. The entire purpose of health insurance is to reduce financial risk and the companies' surpluses do just that.

Reserves are extremely fragile. A drop in the bond and stock market could reduce surpluses by 15-20 percent and a natural disaster could take 20-25 percent out of reserves in one day.

The government now sets regulations, determines premium pricing and dictates who the health insurance companies must insure.  By limiting surpluses, the Insurance Commissioner would place the companies and those they insure at great financial risk. And, of course, the government would blame the insurance companies if they didn't have the financial reserves to cover medical costs for their customers.