How much is too much for insurers?

Scrutiny, but not action — not yet — is the right course for Insurance Commissioner Mike Kreidler concerning the large retained profits of the health insurers.

This page brought the issue to public attention in our editorial of Nov. 13, which said Premera, Regence and Group Health had piled up more capital surpluses than they needed. We have since hosted two delegations from the companies, one from opponents, and sat through Kreidler's public hearing of Dec. 8. Premera, Regence and Group Health are businesses. To build up equity in the things they own, and for rainy days, they need to make profit. But they are not operated for profit, meaning they have no stockholders. Their "owners" are customers whose interest is that their insurer has enough capital to cover their losses. The question, said Kreidler at his hearing, is, "How much is too much?"

Regulators worry about companies having enough. They have not set a standard for what is too much.

Two insurance men, Brian McCulloch and Curtis Fackler, offer such a standard in Initiative 343 (explained at www.giveitbacknow.org). It defines too much capital by a formula. So far, their formula has not received wide endorsement.

Kreidler hired Milliman, the actuarial consultants, for advice. Milliman's Tim Barclay said the issue of surplus capital is best handled in "a competitive marketplace." That was our thought Nov. 13.

But is there real competition? The critics say there is not, and point to price increases and capital surpluses. The companies say there is, and point to new product offerings and a declining rate of price increases. Regence says it is raising its prices 6 percent next year — the lowest average increase since 1996 — and 4 percentage points less than the expected increase in medical claims.

The health-insurance business runs in cycles. Group Health lost $90 million between 1995 and 1998; now, it is building a $142 million specialty-care center in Bellevue and paying for it out of cash. That is one measure of the insurers' changing fortunes.

If they were stock companies, there would be less to say about it; but they are not-for-profits created in trust for their customers. At some point they exhaust the claim that more capital is in their customers' interest.

But at what point, Kreidler cannot say. His staff is working out a standard and a proposal. While that is moving along, the commissioner and the Legislature don't need to do anything.