Anthem Blue Cross Delays Rate Hike Pending Review by California Officials

Anthem Blue Cross will postpone by two months a massive rate hike that was set to take effect March 1 pending the results of an outside review launched last week at the behest of California Insurance Commissioner Steve Poizner.

The increase, sharply criticized by a top Obama administration official, could force as many as 700,000 California customers who purchased individual premiums to pay 39 percent more for coverage. [Full disclosure: I am one of Anthem Blue Cross’ California customers.]

In a conference call with reporters Saturday, Poizner, a GOP gubernatorial candidate, said he reached an agreement with Anthem Blue Cross to delay the start of the rate hike until May 1.

Anthem Blue Cross “did the righ thing today, ” Poizner said. “These are huge, massive rate increases, very concerning to me and my team.”

Last week, Poizner sent a letter to Angela F. Braly, president and chief executive of Anthem’s parent company, WellPoint, Inc., and Larry C. Glasscock, WellPoint’s chairman, Poizner said the an “outside actuary” will determine if the rate hikes are excessive and if Anthem Blue Cross was spending 70 cents of every dollar on premium medical care as required by state law.

“If we find that their rates are excessive, I will use the full power of my office to bring these rates down,” Poizner’s letter stated.

He told reporters Saturday that the actuaries were “instructed … to review the rates with a fine-tooth comb” and if “they find that these rate increases were unwarranted, I will immediately take action to get Anthem Blue Cross to follow the law and lower their rates.”

Axene Health Partners LLC of Southern California was tapped to assist with the review.

Brian Sassi, an Anthem Blue Cross’ President and Chief Executive Officer Consumer Business Unit, on Rate Adjustments in California, said the company filed first filed notice of the rate increase with state regulators last November.

“They are actuarially sound and in full compliance with all requirements in the law,” Sassi said in a prepared statement issued Saturday. “The rate adjustments have been reviewed by an independent expert. Our decision to agree to postpone the rate adjustment does not change the underlying issue.

“All health plans are in the same situation in trying to deal with the steadily increasing medical costs in the delivery system, which are not sustainable. We are also experiencing a higher proportion of healthy individuals choosing not to enroll, leaving an insured pool that utilizes significantly more services. We need to refocus the health care reform debate toward steps that will improve quality and control the underlying medical costs, which is driving the high cost of coverage.”

But Poizner said “medical cost inflation in California is in the 10 to 15 percent range, so I have a healthy skepticism how they can [justify a 39 percent” rate hike.

The San Francisco Chronicle reported that unlike home and automobile insurers, “California insurers can legally raise rates for policyholders as much as and whenever they want. Regulators technically oversee the increases, but they have no power to control rates.”

“The most recent effort to require state regulators to approve health insurance rate increases, a bill by Assemblyman Dave Jones (D-Sacramento) failed to pass the Assembly Health Committee in April,” according to the Chronicle.

Health and Human Services Secretary Kathleen Sebelius also blasted the rate hike, noting in a letter last Monday to Anthem Blue Cross President Leslie Margolin that it’s difficult to understand how the company can justify it given that Blue Cross’ parent company, WellPoint Inc., “has seen its profits soar, earning $2.7 billion in the last quarter of 2009 alone.”

WellPoint’s profit for all of 2009 was $4.7 billion, nearly twice as much as the company earned the year before.

“I believe Anthem Blue Cross has a responsibility to provide a detailed justification for these rate increases to the public,” Sebelius wrote. “Additionally, you should make public information on the percent of your individual market premiums that is used for medical care versus the percent that is used for administrative costs.”

On Saturday, Sebelius said that the temporary delay in hiking insurance rates “offers some temporary relief,” it does not go far enough and “underscores the urgency of passing real health insurance reform.”

Rate Hike Is “Hardly Unusual”

Blogger Karoli, who has written extensively on the debate surrounding efforts by Congress to reform the health care industry, noted in a post Saturday that Anthem Blue Cross’ actions are “hardly unusual.”

She pointed to an October 24, 1989, Los Angeles Times report that said the company, then known as Blue Cross of California, planned to increase rates by 20 percent for members who bought individual plans.

Karoli also flagged a May 14, 2005 Los Angeles Times report that said Blue Cross was being investigated for a double-digit rate increase, which some believed the was the catalyst that helped finance the sale of Blue Cross parent company WellPoint to Anthem.

According to the Times:

Heeding complaints from policyholders and consumer advocates, state regulators said Friday that they had intensified their investigation into whether recent Blue Cross of California rate hikes helped finance the company’s sale to an out-of-state health insurer in a $21-billion deal.[…]

To win approval from state regulators, the combined company, now known as WellPoint Inc., pledged that Blue Cross’ 7.6 million California policyholders wouldn’t be saddled with any of the estimated $4 billion in expenses stemming from the deal — including financing and legal costs and severance pay for retiring executives.

Consumer activists, citing anecdotal evidence gathered from policyholders, testified that some Blue Cross customers were being hit with rate increases of 20% to 40% on individual and family coverage.

Blue Cross was cleared of any wrongdoing in the matter, as Karoli reported, and the rate increase remained intact.

But the company’s latest rate hike, coming at a time when Congress is trying to overhaul the insurance industry, has caught the eye of one powerful lawmaker in Congress and could result in a bit more scrutiny.

Congress Launches Investigation

Rep. Henry Waxman, the Democratic chairman of the powerful House Committee on Energy and Commerce, launched an investigation last Tuesday into Blue Cross’ rate increase and sent a letter to Braly, WellPoint’s chief executive, asking her to voluntarily testify about the issue February 24 and provide “a detailed explanation of the reasons for the premium rate increase proposed by Blue Cross in California.”

Additionally, Waxman (D-California) and Subcommittee on Oversight and Investigations Chairman Bart Stupak (D-Michigan) asked Braly to turn over to his committee a wide-range of documents, including emails from high-level corporate executives and the company’s financial statements that may help to flesh out the narrative about other possible underlying factors that led the company to impose a rate increase.

The testimony, which Braly has not yet confirmed she will attend, will be followed by a bipartisan health care summit at the White House, which will be broadcast live on C-Span.

According to the invitation sent to Repubublican lawmakers, a copy of which was obtained by Christian Science Monitor, Democratic and Republican leaders attending the meeting are “to present ahead of time (and online for all to see) a comprehensive bill that would “put a stop to insurance company abuses, extend coverage to millions of Americans, get control of skyrocketing premiums and out-of-pocket costs, and reduce the deficit.”

Obama has publicly cited the Blue Cross rate increase over the past week President Barack Obama as an example of what will happen if “Congress doesn’t act.”

During a press briefing with reporters last week, Obama said the rate hike “is just a preview of coming attractions. Premiums will continue to rise for folks with insurance; millions more will lose their coverage altogether; our deficits will continue to grow larger. And we have an obligation – both parties – to tackle this issue in a serious way.”