Insurers' rate increases pass new scrutiny

State insurance regulators on Thursday regained the power to reject excessive premiums for individual health plans — but their newfound authority won't stop thousands in Washington from getting socked with double-digit rate increases this summer.

On Wednesday, Regence BlueShield, the state's largest insurer for such plans, began mailing notice to 150,000 policyholders that rates will jump an average of 17.8 percent Aug. 1.

Earlier, Seattle's Group Health Cooperative notified about 20,000 customers with individual and family coverage that their premiums would rise almost 10 percent on July 1.

The rate increases are the first to be vetted by state Insurance Commissioner Mike Kreidler under a new law that gives him authority to disallow "unreasonable" premiums on individual policies — the same authority he exercises over premiums on certain group policies.

The new oversight, however, made barely a dent in the insurers' requests. Regence knocked two-tenths of a percentage point from its proposed 18 percent increase; Group Health asked for a 9.8 percent rise and got 9.7 percent.

"One may wonder, if the OIC [Office of Insurance Commissioner] now has authority, what muscles have actually been exercised," said Sean Corry, vice president of Sprague Israel Giles, an insurance brokerage in Seattle.

Beth Berendt, deputy insurance commissioner in charge of rates, said the insurers showed rising health-care costs warranted the new premiums.

"The rates were justified," she said.

Corry argues that Kreidler is hampered because he can't consider insurers' surpluses — money set aside for unexpected expenses — when reviewing rates. Corry contends that state's three largest health insurers, Regence, Group Health and Premera Blue Cross with subsidiary LifeWise Health Plan, have too much in reserve. All three are nonprofits.

"That surplus money was grown by excessive premiums over time and should be given back," Corry said.

In 2007, Regence earned $65.4 million, ending the year with a $923 million surplus, up $41.7 million from 2006.

Nancy Ellison, Regence's director of legislative and regulatory affairs, defended the size of its surplus as a necessary cushion in a cyclical industry. She said that selling individual health policies is a volatile business, and that Regence lost $13 million in it last year.

"We've priced our plans to keep it as low as possible," Ellison said.

Michael Foley, a spokesman for Group Health, also disagreed that the co-op's surplus, which has climbed by $197 million to $720 million in the past two years, is too high.

Foley credited Group Health's financial strength for allowing it to price its health plans aggressively to attract customers. Group Health had not raised rates for its individual plans since a 15.5 percent increase in April 2006.

"We are looking at [profit] margins of less than 2 percent for individual and family markets," Foley said. "That's cutting it pretty close."

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