Wellmark Blue Cross and Blue Shield’s $1.3 billion in reserves are “reasonable and prudent,” according to the results of an independent review released this morning by the Iowa Insurance Division.
The review, ordered by Iowa Insurance Commissioner Nick Gerhart in November 2013, concluded that Wellmark’s “current capital and liquidity provide adequate resources to deal with potential shocks without having a disruptive impact on its policyholders in Iowa and South Dakota.”
The review, in part, was in response to a state legislator's concern about Wellmark raising its rates and its decision last year not to participate in insurance exchanges created the Affordable Health Care and Patient Protection Act. The legislator asked for a review of Wellmark's reserves.
The Des Moines-based health insurer provides coverage for more than 2 million policyholders in Iowa and South Dakota and pays out approximately $5 billion in claims annually. Wellmark’s reserves at the end of 2012 were approximately $1.3 billion, which would pay about three months of claims.
“This review confirms that Wellmark is running our business in the best interest of our members,” Wellmark Chief Financial Officer David Brown said in a release. The Iowa Insurance Division commissioned a similar review of Wellmark’s reserves in 2011, which found that the insurer’s reserves were proper, or possibly too low, given the expectation of the federal health care overhaul.
Wellmark targets an operating margin of between zero and 3 percent each year, adjusting that figure for how much it figures it needs to add to maintain an adequate level of reserves. The insurer incurred a significant operating loss in 2009 when investment markets plummeted and the company’s actual medical losses were higher than expected, which led the insurer to target a 3 percent operating margin for the past few years to rebuild reserves.
In July 2013, Sen. Jack Hatch, a Des Moines Democrat who is running for governor, wrote a letter to Gerhart seeking a review of Wellmark’s reserves. http://www.documentcloud.org/documents/724920-letter-on-wellmark-reserves.html#document/p1 Hatch said Wellmark’s decision last year to delay participating in the health insurance marketplace until 2015 mitigated a major premise that higher reserves were necessary to pay higher health care costs expected under the new health insurance law.
Hatch, who could not be immediately reached for comment, has sponsored a bill that would give the insurance commissioner authority to order health insurers to refund excess reserves to policyholders.
Wellmark has garnered support for maintaining its reserve levels from both business and health industry leaders, among them Bankers Trust CEO Suku Radia and Ed Brown, CEO of The Iowa Clinic.
“With consolidation in the health insurance industry, it is important that we have a local health insurance company that has the financial stability to weather these uncertainties and still adapt to reflect our state’s provider and consumer market issues,” The Iowa Clinic's Brown said in a release from Wellmark.
Radia said the health insurance industry, like the banking industry, is in the midst of unprecedented change.
“Members from each of our organizations want to be reassured that the company in which they have placed their trust, money, and health, has the resources needed to ensure their future safety and security,” he said.