Premera ordered not to sell LifeWise plans in Arizona

Washington Insurance Commissioner Mike Kreidler on Wednesday ordered Premera Blue Cross to stop selling new LifeWise health-insurance plans in Arizona, contending that Premera is siphoning premium dollars paid by policyholders in Washington to shore up an unprofitable subsidiary in another state.

The legal order against LifeWise Health Plan of Arizona bars the company from issuing any new policies until it files a "viable financial plan."

The action follows months of growing concern that Mountlake Terrace-based Premera was relying on Washington customers to subsidize 31,000 LifeWise policyholders in Arizona, Kreidler said.

So far, Premera has transferred $37 million to its Arizona operations and plans to pump in $12 million more — money that Kreidler argues belongs to Premera members in Washington.

"You can't just keep using a blank check from Washington policyholders," Kreidler said.

Mark Stuart, a spokesman for Premera, said premiums for members in Washington are set solely based on their claims experience.

"There is no subsidy. Period," Stuart said.

LifeWise has lost $34.8 million since it began business in 2004. By Premera's own calculations, it likely will take five more years for the Arizona operation to turn its first profit.

Stuart said it wasn't unusual for a company to take eight years to reach profitability. "This is a startup company," he said. "No company is profitable from the get-go."

LifeWise sells one of the lowest-priced individual and group health plans available in Arizona. But the company may need to raise premiums and cut commissions to brokers to turn its business around, Kreidler said.

Premera, on the other hand, is profitable. For the first six months of this year, Premera had a net income of $48 million and had a surplus — a financial cushion against unseen events — of $746 million.

Kreidler's order does not apply to Premera's LifeWise businesses in Washington and Oregon. Premera is a nonprofit, as is LifeWise in Washington. But the LifeWise subsidiaries in Arizona and Oregon are both for-profit.

Brian McCulloch, an insurance consultant in Shoreline who twice ran unsuccessfully for state insurance-commissioner's office, said Premera's LifeWise "subsidy" is part of a larger problem. Health insurers in Washington have amassed huge surpluses instead of holding premiums rates down, he said. For instance, Regence BlueShield, Washington's largest health insurer, now has a surplus of $915 million.

That's well beyond what Regence needs as a financial buffer, McCulloch believes. The "excess" surplus could be used, instead, to refund several hundred dollars to each person covered by Regence, Premera or Group Health Cooperative, he argued.

Kyung Song: 206-464-2423 or ksong@seattletimes.com