This is interesting. A large health insurer is suing Maine for setting rates below what would be required for a "a fair and reasonable return." The margins in question are
- 2009 3%
- 2010 0.5%
- 2011 1%
For context, Oregon (cited in the article) set rates at negative returns, specifically saying they wanted to take insurer surplus and give it to consumers.
This kind of “taking” looks fair if you don’t think about it. After all, why shouldn’t consumers benefit if insurers have excess capital? The problem in a nutshell is that the excess capital wasn’t paid in by the same people who would be getting it out. People who are policy holders in 2011 are not necessarily the same people who were policy holders in prior years when the surplus was built up. Even more so, there are differences in product mix. If an insurer is making “fat” profits off large group customers, what is the moral reasoning behind taking that money and giving it to small group or individual customers? It subsidizes small business at the expense of large, or even worse subsidizes employers that don’t offer insurance by taking from those that do. Anthem leaves this to section III-A-3 in their brief, but to me it’s their best argument.
I hope the Anthem suit fails because regulators should have maximum flexibility to respond to market place needs. But at the same time the concept of “taking” deserves much more public scrutiny, and for that I’m glad the suit was filed. Scheduled for oral arguments 11/8/2011.