Our health policy analysts Lynn Quincy and Steve Findlay address some of the biggest myths over at Health Affairs blog, including the oft-repeated claims that reform will destroy Medicare, will bust our budget, and should be slowed-down and done in small bits.

Below are their fact-based responses to those myths, and make sure to read their responses to the entire list here, including other false claims that reform is a government-takeover of health care and doesn't address rising health costs.

It will destroy Medicare.This is a distorted and disingenuous allegation. The legislation seeks to reduce Medicare spending by roughly $500 billion over the next decade, compared to current projections. But Medicare spending is not “cut” at all. If the Senate bill becomes law, Medicare spending will still rise from an estimated $517 billion in 2010 to $896 billion in 2019, according to the forecasters at CMS. That’s about 10 percent less than would happen if the Senate bill does not become law. Almost all that 10 percent comes out of inefficient programs (such as Medicare Advantage). The legislation also puts the federal government in the lead of reforming a health system where at least 20 percent (the estimates go up to 30 percent) of expenditures are wasted on inefficient or wasteful medical services. In addition, the legislation strengthens Medicare in many ways: adding new preventive care benefits, reducing the size of (and perhaps elim! inating) the Part D drug benefit doughnut hole, and, according to both the CBO and the CMS actuaries, lengthening by almost ten years the time before the Medicare Hospital Trust Fund dips into the red.

It spends $1 trillion we don’t have and will bust the budget. The trillion-dollar expense has been cited out of context for the entire year of debate. Bear this in mind: as a nation, we’ll spend a projected $35 trillion on health care from 2010 through 2019 without health reform. If we were really adding a trillion more dollars in that ten-year period, that would add 3 percent to the $35 trillion. However, the respected number crunchers at the Centers for Medicare and Medicaid Services Office of the Actuary estimated in January that the legislation would actually increase national health spending over the next decade by just 0.6 percent because it reduces wasteful spending, mostly in Medicare. Also, 90 percent of that $1 trillion in new spending is allocated to helping people buy coverage: expanding Medicaid and tax subsidies to help ! families buy private health insurance. What’s more, this new spending is paid for and, according to the Congressional Budget Office does not add to the federal deficit.

Incremental would be better. And let’s slow down, too.Twenty-five years of incrementalism has not solved our core problems—in fact, they’ve gotten worse during that time. In addition to both the rising number of uninsured and soaring costs, the delivery of care today is more fragmented than a decade ago, with little or no reduction in the risk of harm to patients from poor quality and service. That said, some incrementalism is appropriate, and we believe this legislation includes it. For example, we think it’s a good idea to proceed deliberatively and incrementally, and based on evidence, when it comes to changing the way doctors and hospitals get paid, in order to insure against disruptions. But incrementalism that expands coverage to three million people over the next decade is pointless; it’s not incrementalism, it’s token reform.

There is also one argument we find particularly compelling: virtually every major federal health care program that has been enacted over the last fifty years—from Medicare and Medicaid to COBRA, SCHIP, and the Medicare Part D drug benefit—has improved the health, financial security, and well-being of the U.S. population and, ultimately, has been embraced and supported by the public.

Many of these programs were politically contentious and took years to enact. But today, few people outside Washington and health policy circles remember or care about the political blood on the floor, how many pages the bill was, or the final vote tally. All they know is that they gained new options and benefits. In the end, it’s not about the political process; it’s about programs and policies that make people’s lives better.

The Illinois report provides some further clues as to why some of these rate hikes are so astounding. (Insurers are required to file their increases with the Illinois Department of Insurance, but the agency has very little legal authority to regulate rates.) The state has reported that, in 2008 and 2009, rate hikes on “closed blocks” (insurance policies that are no longer being sold to new customers) were almost all in the double-digit range, with a majority of increases at 20% or higher. However, many rate hikes on “open blocks” (insurance policies that are still being marketed to new customers) were less than 10%, with a majority of increases at 15% or less.

So what does that mean? If you buy an individual health insurance policy, you still end up in a “group” that includes all the people who purchased that policy (or similar ones as determined by the company). The insurer will raise your premium based on how much it costs to cover medical services for the policyholders in your group. So far, that sounds just fine.

But insurance companies can only keep the rates for that group down if they keep selling that policy to new, healthy people. They well know that once they “close” a group by pulling that policy from the menu marketed to new customers, then that group will simply grow sicker over time. Because we all get sick eventually.

As medical costs increase for the group, and with no new low-cost healthy people paying in, insurance companies can justify significant rate increases. As the rates go up, the healthiest people shop around for another policy and buy into an “open” group somewhere else. The sick people now have a pre-existing condition and can’t go anywhere.

The effect of this practice is that people who most need medical care face premium increases of 20 to 60 percent. They pay until they can’t pay anymore, and then drop the plan. Most state laws prohibit insurers from canceling sicker customers outright, but in this system they don’t have to.

Pennsylvania’s Insurance Commissioner, Joel Ario, recently told state legislators that the Blue Cross and Blue Shield plans in his state sought rate increases of 30 to 40 percent for some individuals. He allowed only an average of 10% increases, and explained why in a letter to lawmakers:

Many of the proposed increases…exceeded 20% and some exceeded 40%, not because medical trend was running that high for all customers but rather because the filings were more aggressive in discriminating between good and bad risks. When the companies pointed to medical inflation as a reason for seeking increase, we pointed out that medical inflation, while still unsustainably high, is running under 10% on average. We also pointed out that the requested rate increases were based more on reducing or eliminating past practices that spread risk broadly across product lines rather than on broad increases in utilization. Finally we found other actuarial problems on a case by case basis.

So when we hear insurers howling about medical costs driving up premiums, we need to look closely at whether they are fairly spreading risk among their policyholders or whether they are merely trying to get rid of those who actually need their product.

It didn't start out that way.

BCBS plans started in the 1930s with a charitable mission as nonprofit charitable corporations. They took everyone and provided coverage at an affordable price. "Membership in a Blue Cross plan was practically a civic duty." The "Blues" grew big and covered American families for two generations.

Then in 1994 the trade association for Blue Cross Blue Shield plans changed its rules to allow plans to become for-profit corporations. California’s Blue Cross was the first plan to jump into the for-profit ring, becoming WellPoint. In 2004, Wellpoint and Anthem merged to become the largest health insurance company in the country.

Today, Wellpoint reports huge profits but to do that, it abandoned its original mission of providing health insurance to all at an affordable price. A loss to California and the nation.

by Senior Policy Analyst Lynn Quincy
Read report as pdf.

Summary
Medicare Advantage Plans, private plan alternatives to traditional Medicare, will likely undergo a lot of changes in the near future. To help keep the Medicare program trust fund from running out of money, the Medicare agency (CMS) and Congress are likely to reduce documented overpayments to Medicare Advantage plans, as well as make other changes designed to improve the quality of their operations. These types of changes will probably be enacted whether or not we get comprehensive health reform. In this brief, we look at how Medicare Advantage plans reacted to past payment changes, and review the rights of seniors should their Medicare Advantage plan raise premiums, reduce benefits, or withdraw from the market.

Why Are Payments to Medicare Advantage Plans Being Reduced?

Medicare Advantage (MA) plans, private plan alternatives to traditional Medicare, will likely undergo a lot of changes in the near future. Medicare Advantage plans were originally intended as a way to lower Medicare costs. Through competition, flexible design, care coordination and other innovations, they were expected to save an average of 5 percent for each person enrolled.1 As the program evolved, however, the government’s payment rules were relaxed, these private plans ended up getting paid too much. Today, MA plans actually cost an average of 9-13 percent more per beneficiary than traditional Medicare spends.2 The overpayments average more than $1,100 for each beneficiary enrolled in a private plan.3

Instead of saving Medicare money, overpayments to the MA plans advance the day when Medicare’s Part A (hospital) Trust Fund is predicted to be insolvent (in 17 months).4

In addition, the overpayments raise the cost of the Part B premiums paid by all enrollees.5

With or without comprehensive health reform, government payments to Medicare Advantage plans will be reduced so that they more closely approximate the cost of covering those beneficiaries in traditional Medicare. The program simply can’t afford these higher payments.6

Every year since 2005, the commission that guides Congress on Medicare policy has recommended that MA payments be brought in line with the costs of the traditional Medicare program.7 While Congress has not yet acted on this recommendation, more incremental reforms are already underway. The 2008 Medicare Improvements for Patients and Providers Act reduced payments, strengthened protections for beneficiaries with respect to how MA plans are marketed, and required private fee-for-service (P.F.F.S.) plans to have formal networks of providers in place starting in 2011. In addition, CMS (the government agency that administers Medicare) has been moving administratively to reduce overpayments due to the way plans bill or code the cost of care.

Finally, to reduce “clutter” in the marketplace, CMS is encouraging the consolidation of plans with fewer than 100 members.8

How does Medicare Advantage differ from Medicare?

Medicare Advantage is an alternative to “traditional” Medicare. The federal government pays private insurance companies who voluntarily run these alternative plans as a means of giving seniors more options. These private plans must cover the same services as Medicare but may use different cost-sharing arrangements. They may also use “restricted” networks of providers, like an HMO. When these plans receive a government payment that exceeds their cost of providing coverage that is “actuarially equivalent” to Medicare, they must provide a rebate to enrollees or include extra benefits like eyeglasses. About 24 percent of the Medicare population is enrolled in these plans. Many enrollees in these plans don’t know them as Medicare Advantage because their insurance card uses a different name, like Secure Horizons.

Traditional Medicare consists of several parts: Part A (Hospital Insurance) which helps pay for inpatient care in a hospital, skilled nursing facility, or hospice, and for home health care; and Part B (Medical Insurance) which helps pay for doctors’ services and outpatient care. Prescription drugs are covered through an optional program called Part D—a program enacted in 2003 that also uses private insurers. Another optional coverage that seniors can buy is Medigap (also known as Medicare Supplemental) plans which help fill in some of the cost-sharing associated with traditional Medicare.

The largest Medicare Advantage plans spend 15 percent of revenues on profits, marketing and other corporate expenses. In contrast, traditional Medicare spends 98 percent of its money on medical care. What Does This Mean for MA Enrollees? Today, these excess payments translate into extra benefits for MA enrollees and profits for the plans themselves. As prior payment adjustments have demonstrated, MA plans could react to this payment reduction in a number of
ways:

Become more efficient and/or reduce administrative expenses and profits to:
** minimize the impact on beneficiaries
** Charge higher premiums9
** Reduce benefits
** Withdraw from the market

This sort of “churning,” in fact, has gone on for years as Medicare Advantage plans react to evolving government requirements designed to address enrollee needs and the long-term financial solvency of the program. Fortunately, beneficiaries have a guaranteed right to return to traditional Medicare at any time, along with other rights. Below, we examine enrollee options under the four scenarios.

Could MA Plans Become More Efficient?

Consistent with the original intent of these plans, several recent reports suggest that MA plans could become more efficient. By tightening up their non-medical spending (such as advertising), they could absorb all or part of the lower government payments without raising premiums or reducing benefits.

Approximately 70% of MA enrollees are in for-profit plans. According to a recent study, in both 2005 and 2006 MA plans earned more profit than they expected to when they prepared their bids for CMS, the Medicare agency.10 When MA plans take in more profit than expected, this disadvantages enrollees.

MA plans are expected to provide extra benefits or reduce out-of-pockets costs, when their payments from Medicare exceed the cost of covering Medicare’s basic services (plus reasonable overhead). Unanticipated profits, however, come too late for extra benefits to be included in the current year’s benefit package.

Overall, Medicare Advantage plans spend fairly large sums on non-medical costs. According to another report, the 34 largest Medicare Advantage insurers spent over 15 percent of revenues (enrollee premiums plus their government payment) on profits, marketing, and other corporate expenses.11 In contrast, traditional Medicare spends 98 percent of its money on medical care.

Anyone enrolled in Medicare Advantage always has the right to return to traditional Medicare (Part A and Part B). Furthermore, some MA plans have demonstrated an ability to deliver the Medicare package of services as efficiently as traditional Medicare. In general, long-standing HMO-style plans cover their enrollees at a cost that is the same or cheaper than traditional Medicare.12

We conclude that there is room for MA plans to become more efficient but littleguarantee that the most efficient plans will be emulated, if payment rates are reduced. If past history is any judge, it is likely that many of the for-profit plans will cut back on services, providers, or withdraw from unprofitable markets.

If MA Plans Withdraw From The Local Market

Payment cuts in 1997 led to significant withdrawals of what-was-then-termed Medicare+Choice plans. Similarly, the rule changes implemented in 2008 and 2009, led to about 18 percent fewer Medicare Advantage plans being offered in 2010.13

Most of the plans that have been dropped had tiny enrollments and simply cluttered the marketplace. Despite these withdrawals, the average Medicare beneficiary still has a bewildering number of Medicare Advantage plans to choose from: 35 in urban areas and 24 in rural ones.14

If their Medicare advantage plan withdraws from their local market, beneficiaries have significant rights to enroll in another plan. During annual enrollment (Nov. 15-Dec. 31), you can switch to another MA plan. You can also switch from January 1- March 31 each year, but can’t join or switch to a plan with prescription drug coverage during this period unless your prior plan also featured drug coverage. If you do nothing, you will continue to be enrolled in the prior year’s plan.

Return to Traditional Medicare.

Anyone eligible for Medicare always has the right to return to traditional Medicare Part A (hospital insurance) and Part B (medical insurance) at any time. Just give your MA plan 30 days written notice, and they will notify Medicare. You don’t even have to wait for the annual open enrollment period.

If they don’t have drug coverage from another source, most enrollees will want to also sign up for a prescription drug plan, often called Part D. Enrollees who had drug coverage with their Medicare Advantage plan can enroll without penalty. If they didn’t previously have drug coverage, they may pay a premium penalty.15

A return to traditional Medicare may mean that you’d want to buy a Medigap policy. These are private plans that fill in the patient cost-sharing associated with traditional Medicare, for example, the hospital deductible (now more than $1,000 per admission). If your MA plan withdraws from your area of the country and you are 65 or older, you may enroll in Medigap without penalty, but you must apply within 60 days of the end of your MA plan benefits.16 If your MA plan withdraws, you have the right to purchase this Medigap plan without regard to your medical history or condition.

Switch to another Medicare Advantage plan. Today, almost all seniors are able to choose from at least 10 Medicare Advantage plans, and on average, seniors have 33 MA plans to choose from.17 So even if some plans choose to withdraw, most seniors would still have several options.

If you do nothing, and don’t select a new plan, you’ll automatically revert to traditional Medicare. This could leave you uncovered on prescription drugs unless you affirmatively take steps to purchase a Part D drug plan.

If MA Plans Raise Premiums Or Decrease Benefits

Medicare Advantage plans must provide all benefits covered under Medicare, but have the flexibility to modify the cost-sharing as long as the core benefit package is “actuarially equivalent” (has the same dollar value) to traditional Medicare. If the payments they receive from Medicare exceed what they need to provide this actuarially-equivalent package, the MA plan must offer extra benefits or reduce beneficiary costs. Due to this flexibility, Medicare Advantage plans typically use fixed dollar copayments for Medicare covered services, rather than a coinsurance, and many plans have a limit on enrollees’ out-of-pocket spending, unlike traditional Medicare.18 MA plans often offer extra benefits, but studies show the value of these benefits is often far below their cost to the Medicare program.19

Not all MA enrollees pay a premium to participate in MA plans, that is, a premium over and above the Part B premium that all enrollees (traditional or MA) pay to CMS. While not as common among HMO-style plans, almost all MA plans with larger provider networks charge premiums. Today, about 57% of enrollees in MA plans that include drug coverage pay these extra premiums.20

As MA plans respond to changing market conditions and new CMS rules, they often modify their benefits or raise premiums. For example, in 2010, enrollees in MA plans that feature prescription drug coverage saw an average premium increase of 32%.21 In another example, between 2008 and 2010, MA plans increased cost-sharing for stays in a Skilled Nursing Facility by 18%.22

When MA plans raise premiums or reduce benefits, beneficiaries can switch plans during open enrollment. As described below, the rules governing this process vary somewhat from the rules covering plan withdrawals.

If you leave your Medicare Advantage plan because of higher premiums or reduced benefits, you are considered to have left “voluntarily.” As such, you may not be able to enroll in any Medigap plan you want. Your protections will depend on the state you live in.23

A majority of states do not guarantee access to Medigap plans, once a senior’s initial enrollment period (usually around age 65) has ended. In states without these protections, Medigap plans may require you to undergo medical underwriting (an examination of your health history and a physical exam). Based on these underwriting results, Medigap insurers may not sell you a policy, or may charge you higher rates.

In Conclusion

Medicare Advantage enrollees confronted with a plan withdrawal, a significant increase in premiums, or a major reduction in plan benefits, have strong rights to return to traditional Medicare or enroll in another MA plan. The greatest weakness in these protections involves their ability to enroll in Medigap (Medicare Supplemental) coverage. If they leave their MA plan “voluntarily,” seniors could be denied Medigap coverage or face higher premiums, depending on the rules for their state.

There also seems to be considerable latitude for MA plans to respond to payment changes by becoming more efficient, thereby realizing the original vision for these plans and improving their value for taxpayers and the Medicare beneficiaries who fund the program through their Part B premiums.

1 B. Biles, L. Hersch Nicholas, and S. Guterman, Medicare Beneficiary Out-of-Pocket Costs: Are
Medicare Advantage Plans a Better Deal?,” The Commonwealth Fund, May 19, 2006.

2 Medicare Payment Advisory Commission. Report to Congress: Medicare Payment Policy, March
2010.

3 Brian Biles, Jonah Pozen, and Stuart Guterman. The Continuing Cost of Privatization: Extra
Payments to Medicare Advantage Plans Jump to $11.4 Billion in 2009, The Commonwealth Fund,
May 4, 2009.

4 Rick Foster, “Letter to Congressman Stark,” Office of the Actuary, Centers for Medicare and
Medicaid Services, June 25, 2009.

5 Ibid.

6 The unappealing alternatives to extend the life of the Medicare Trust Fund are (1) raising taxes on
younger workers, many of whom have no health insurance, (2) cutting essential core benefits in
traditional Medicare, or (3) paying hospitals and doctors less (which carries the danger of those
providers not wanting to provide care to traditional Medicare enrollees).

7 Medicare Payment Advisory Commission, “Report to Congress: March 2010 – Fact Sheet,” March
2010.

8 A 2009 CMS analysis found that twenty-seven percent of total Medicare Advantage plans have
fewer than 10 enrollees.

9 About 57% of enrollees are in plans that charge a premium, in addition to the Part B premium that
beneficiaries pay to CMS. While not as common among HMO-style plans, almost all MA plans with
larger networks of providers charge premiums.

10 Payments to MA organizations are, in part, based on the projected expenditures organizations
submit in their bids for providing Medicare-covered services, as well as actual enrollment and
beneficiary health status. See Medicare Advantage Organizations: Actual Expenses and Profits
Compared to Projections for 2006, December 8, 2008 letter from GAO to The Honorable Pete Stark.
http://www.gao.gov/new.items/d09132r.pdf

11 United States House Of Representatives, Committee On Energy And Commerce Majority Staff.
Profits, Marketing, And Corporate Expenses In The Medicare Advantage Market, December 2009,
http://energycommerce.house.gov/Press_111/20091209/MedicareAdvantageReport120909.pdf

12 Medicare Payment Advisory Commission, “Report to Congress: Medicare Payment Policy,” March
2010.

13 Gold, Marsha, Phelps, Dawn, Neuman, Tricia & Jacobson, Gretchen. Medicare Advantage 2010 Data
Spotlight: Plan Availability and Premiums. Kaiser Family Foundation, February 2010.
http://www.kff.org/medicare/upload/8007.pdf.

14 Ibid.

15 If you want to purchase Part D prescription drug coverage after your initial enrollment period
(typically, when you turn 65), and you are coming from a plan that does not have prescription
coverage that is as good as Medicare’s prescription drug coverage, you will pay a premium penalty.
The penalty is at least an extra 1 percent of the national average premium for each month that you
delay and are without “creditable” drug coverage. This amount will be added to your Part D
premium for as long as you have Medicare prescription drug coverage. See:
http://bulletin.aarp.org/yourhealth/medicare/articles/making_a_decision_whether_to_enroll_in_part_
d.html

16 Beneficiaries age 65 or older have the right to purchase Medigap plans A, B, C, F, K or L, if their
Medicare Advantage plan withdraws from the market. Beneficiaries under age 65 do not have the
same rights.

17 Gold, Marsha, Phelps, Dawn, Neuman, Tricia & Jacobson, Gretchen. Medicare Advantage 2010 Data
Spotlight: Plan Availability and Premiums. Kaiser Family Foundation, February 2010.
http://www.kff.org/medicare/upload/8007.pdf

18 Gold, Marsha, Maria Huston, Gretchen Jacobson and Neuman, Tricia. Medicare Advantage 2010
Data Spotlight: Benefits and Cost-sharing. Kaiser Family Foundation, February 2010
http://www.kff.org/medicare/upload/8047.pdf

19 Medicare Payment Advisory Commission, “Report to Congress: Medicare Payment Policy,” March
2010.

20 Gold, Marsha, Phelps, Dawn, Neuman, Tricia & Jacobson, Gretchen. Medicare Advantage 2010 Data
Spotlight: Plan Availability and Premiums. Kaiser Family Foundation, February 2010.
http://www.kff.org/medicare/upload/8007.pdf.

21 Ibid.

22 Gold, Marsha, Maria Huston, Gretchen Jacobson and Neuman, Tricia. Medicare Advantage 2010
Data Spotlight: Benefits and Cost-sharing. Kaiser Family Foundation, February 2010.
http://www.kff.org/medicare/upload/8047.pdf

23 Under current law, states can confer additional protections. In Connecticut, for example, any
insurance company which sells Medigap plans A through L must sell them to any Medicare
beneficiary over the age of 65 at any time, regardless of age, gender, medical condition or previous
health insurance claims history. Insurance companies are prohibited from refusing coverage under
these plans based upon a person's medical conditions or medical history.

At the recent White House health care summit, Sen. Jay Rockefeller cited one example of a West Virginia couple who, faced with coverage caps and the million-dollar cost of treating their son’s cancer, were advised to divorce in order to qualify for Medicaid – the government-run health care program for low-income Americans. Tragically, their son died before they had to make that horrible decision.

"The Bords are two dedicated school teachers -- with health insurance, through their employer -- whose son Samuel had Leukemia and needed treatment well beyond the onerous annual insurance limits they didn’t even know they had," Rockefeller said in an earlier statement. "Samuel’s parents were desperate and feared for the worst. When he hit his million dollar cap, my office helped his parents to find more resources, but those ran out too. So, the Bords were left with two heart-wrenching suggestions -- consider getting a divorce so that Samuel would qualify for Medicaid OR stop taking their other children – Samuel’s twin brothers – to the doctor altogether, even if they get sick, in order to save every penny for Samuel. That’s right. Get a divorce OR choose one child’s health care needs over another’s. Those are the choices our nation offered to these caring, hardworking parents with a sick child?

This isn’t a unique situation. Consumers Union has collected thousands of stories from Americans throughout the country struggling with our broken health-care system. Among them are couples who, despite their love for one another — or rather because of their love for one another — divorced in order to get health care.

They include Julie and Gene Thomsen of Spokane, Wash., who after 18 years of marriage, divorced so Julie could qualify for treatment for her uterine cancer. Their income as a couple was $100 over the qualifying limit; breaking up would enable Julie, who was too sick to work, to get the care she needed through Medicaid.

“As we were going through the divorce process, we discovered that we weren't alone,” Julie said. “There are many couples in the same situation. It is not right to force people to make the choice of ‘get a divorce or die.’ (See the Thomsen’s story here, as well as comments from other Americans in their situation).

Julie battled cancer for over four years and celebrated every day she had, speaking out for the need to reform our health care system so others wouldn’t have to struggle to get care the way she did. She volunteered her time with organizations that fundraise for cancer research, and she and Gene continued to take care of each other. After all, they were – in their hearts, if not on paper – still married.

Julie passed away in January 2009. It was the same month that President Obama vowed to reform our healthcare system, and Congress promised to give all Americans affordable, dependable health coverage they could always count on.

The Thomsens and and the Bords are truly tragic examples of our current nonsensical healthcare system, that requires breaking up a family to get needed medical treatment. It is absurd, outrageous, ridiculous – and will continue unless Congress passes the package of health insurance reforms before it.

Thanks to that huge pile of money, the company was able to pay its CEO $10.6 million in salary and bonuses in 2008, almost one million more than Wellpoint paid its embattled chief, according to the AIS Report of BCBS Plans. HCSC does business in four states as Blue Cross and Blue Shield of Illinois, Texas, New Mexico and Oklahoma. The company covers more than 12.4 million people, including about 1.1 million people who purchase their products in the individual market, according to A.M. Best, making it the fourth largest U.S. health insurer.

HCSC is a mutual insurance company; therefore, it is not owned by shareholders and does not need to earn high profits to keep investors happy. A mutual insurer technically is owned by its policyholders, or as HCSC says on its website: “We are customer-owned. That means our ‘investors’ are our policyholders. We answer to them and will always make their best interest our top priority.”

In light of the suffering they’ve caused those same policyholders, many of whom no doubt couldn’t afford the rate increase and had to drop or reduce coverage, that statement seems like a stretch.

The Illinois Department of Insurance reported March 3 that HCSC raised base rates on most individual policies about 8.4% in 2009, on top of 18% increases on many HCSC policies in 2008. And those with HMO plans saw even higher 19.8% increases in 2009. The base rate is the premium charged before the company adjusts the premiums based on risk factors. For those renewing their policies with HCSC, these increases may have been higher based on their age or geographic location.

These increases raise red flags, not only because HCSC is financially strong, with profits of $515 million in 2009 and $743 million in 2008 (down from recent highs of almost $1.2 billion in 2005 and 2006), but also because of the excessive surplus reported in HCSC’s 2009 annual financial statement.

Surplus is, in simplified terms, the amount that a company’s assets exceed its liabilities. State laws require insurers to hold a minimum amount of surplus as a sort of rainy day reserve fund to protect their customers in the event that premiums don’t cover all medical claims, or if the company risks insolvency.

For non-profit and mutual insurers, surplus essentially is their accumulated “profit” – it’s the amount they’ve made on premiums and investments in excess of medical and administrative costs. In recent years, many insurers, especially several non-profit and mutual Blue Cross Blue Shield plans, have built their surplus well beyond state-required minimums. The $6.7 billion that HCSC holds in surplus is more than five times the minimum amount generally required by states before triggering heightened regulatory oversight due to solvency concerns.

Consumers are being denied health insurance coverage or are being priced out of the market by premium increases. Indeed, the states where HCSC does business had almost 9 million uninsured residents in 2007-2008. In Texas, 25.2 percent of residents –more than 6 million people – were uninsured during that time, according to the Kaiser Family Foundation.

So the big question for HCSC, other health insurers, and our regulators is: Why should insurers continue to increase premiums for individuals when their profits are strong, their salaries are fat, and they have more than enough back-up funds available to protect them in the event that premiums fall short?

It took a year to get to this point--with efforts to reach compromises large and small dating back to this time last year. And not to forget, we've been on this hay ride before--1993, 1977, 1971, 1965, 1945 (check out the timeline in pictures here).

As a reminder, bipartisan negotiation over health reform didn't start in December, or even back in the fall. Congress got serious about crafting health reform and began debate about options more than a year ago, shortly after the new administration took office. There have been countless hearings, half a dozen bills, and negotiations over issues large and small.

Just to run through the highlights (there's far too much to list it all):

February 26, 2009: Obama "formally launched" a drive for health reform at a forum of lawmakers and 120 health policy experts in Washington.

Mr. Baucus and Senator Charles Grassley, the top Republican on the Senate Finance Committee, said they were aiming to put together a health care bill by June.

Representative Joe Barton, the top Republican on the House panel that leads on health care, complimented the president on getting all sides together and said "if this is a real process and we're listened to, folks like me will participate."

March 24, 2009: Senate HELP committee holds hearings on insurance market reforms in comprehensive health care reform.

March 24-April 2, 2009: House Energy and Commerce holds a series of hearings (posted here, here, here and here) on a variety of issues in health reform, from cost to access to care.

April 28, 2009: Senate HELP committee holds hearings on lessons learned from state health reform efforts.

April 29, 2009: Baucus (D) and Grassley (R) issue bipartisan policy options paper outlining some approaches to reforming the way care is delivered for broader discussion.

April 30, 2009: Senate HELP committee holds hearings on primary health care access.

May 14 and 20, 2009: Baucus and Grassley issue options for financing comprehensive reform and options for covering everyone also for broader discussion and consideration.

May 14, 2009: Senate HELP holds hearings on innovative ways to improve how we deliver primary and specialty care.

June 11-17, 2009: Senate HELP holds hearings on options for comprehensive reform, bringing together many stakeholders.

June 17, 2009: Those good feelings are already eroding. After months of negotiation in key committees, lawmakers began to slip their deadlines.

Grassley said closed-door negotiations for a bipartisan health reform bill in the Senate Finance Committee hit a snag, delaying an important cost estimate of that bill. But he expressed optimism that the committee will be able to reach a bipartisan health care reform bill.

June 25, 2009: House Energy and Commerce closes three days of hearings on a discussion draft of comprehensive health reform legislation.

July 15-30, 2009: House Education and Labor considers "tri-committee" bill that merges its efforts with that of Ways and Means and Energy and Commerce committees.

July 16, 2009: House Ways and Means committee considers its version of HR 3200.

July 31, 2009: House Energy and Commerce closes five days of discussion and amendments to H.R. 3200, "America's Affordable Health Choices Act of 2009".

September 16-22, 2009: Senate Finance issues America's Healthy Future Act, CBO issues estimates, amendments from both parties are put forward and worked into a "Chairman's markup."

October 2-21, 2009: America's Healthy Future Act is amended in committee, the CBO reports on the amended version, and the committee reports out the bill.

November 3 and 10, 2009: Senate HELP holds hearings on the cost of health insurance for small business and the cost of being sick.

November 7, 2009: House passes Affordable Health Care for America Act. Here's a link where you can see a more comprehensive list of various hearings on the combined bill.

December 24, 2009: The Senate strikes everything from the House bill and substitutes its own language as amended.

And then the negotiations to find common ground between the House and Senate begin. For a year, we've been having open and public debate about a range of options to reduce the cost of insurance, improve care, and much more. There's been vote after vote, and the issues in dispute have gotten narrower and narrower. Was the process perfect. No doubt the answer is no. But it has been a thoughtful process with impressive contributions by both Democrats and Republicans. So after more than a year, its time to finish it.