The Pennsylvania Story

In 2004 a coalition of local unions, medical schools, city governments, and community advocates challenged as excessive the surplus levels of the four Pennsylvania Blue Cross and Blue Shield companies. The Insurance Commissioner ordered each company to submit detailed information on their surpluses along with a proposal for equitable distribution of the excess surplus to benefit policyholders, the uninsured, and underinsured. While each company came forward with financial information on liabilities and surplus for their parent company and information on liabilities for their company’s subsidiaries (both non- and for-profit), each company failed to report figures for the surpluses of all owned subsidiaries, thus neglecting to divulge a full, consolidated picture of the total surplus held by the company.

Consumers Union, and other parties including the City of Philadelphia, retained an independent health economist, Larry Kirsch, to analyze the applications to assess whether the proposed and existing surplus levels were appropriate to ensure the plans’ fulfillment of their charitable missions and obligations to policyholders.

Report to the Pennsylvania Insurance Department Concerning the Applications of Blue Cross Plans for the Approval of Reserves and Surplus, September, 2004. (PDF)

Supplemental Report, October 2004.

Fourteen nonprofit organizations and trade unions also submitted a brief to the Pennsylvania Insurance Department (PDF), addressing appropriate surplus levels and how any excess surpluses may be used to support the health care needs of the state's residents, including the uninsured and underinsured.

As the proceeding approached decision by the Insurance Commissioner, the Governor brought the companies to the table and hammered out an agreement for distributing some of their surplus funds. In the agreement, the four insurers promised to devote nearly $1 billion of their surplus funds over six years for charitable community health activities, including providing basic health care coverage for thousands of low-income and uninsured Pennsylvanians. Days later, the Insurance Commissioner released her decision in which she found that the companies’ surplus levels were acceptable. Community advocates have filed an appeal of her decision.

Many Pennsylvanians should benefit from the agreement reached by the Governor and the Blues companies, but the experience in Pennsylvania also highlights the need for greater transparency and a public process. The plans were not required to divulge their consolidated financial information and the public lost the chance to learn the full extent of the surplus holdings. The Governor met with the companies behind closed doors and never provided an opportunity for community groups to present their concerns. And the Department of Insurance, while it solicited written public comments on the issue, never held evidentiary hearings with intervenors, which would have allowed for meaningful public participation and given the Commissioner more information on which to base her review.

Read information and updates about the Pennsylvania Insurance Department Investigation of Blue Cross Blue Shield here.