Blue Cross grilled on fees;

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State wants to know whether premiums were raised to fund WellPoint merger.

Sacramento Bee

The Schwarzenegger administration questioned Blue Cross of California at a hearing Friday in Sacramento about whether increases in patients’ premiums were used to finance a $16.5 billion merger.

The merger last year between Blue Cross parent company WellPoint Health Networks and Anthem Inc. created the nation’s biggest insurer, with combined revenue of about $37 billion a year and 28 million members, including 7 million in California.

To get the deal approved in California, WellPoint promised Cindy Ehnes, appointed by Gov. Arnold Schwarzenegger to head the Department of Managed Health Care, that rate increases would not be used to finance the merger. The company made a similar promise to California Insurance Commissioner John Garamendi.

“In holding this public meeting, we want to protect California enrollees from merger-related premium increases,” Ehnes said at the hearing.

Patients, consumer advocacy groups and Blue Cross executives all testified about premium increases this year, which in some cases were as high as 20 or 30 percent.

Tracy Campbell, who runs a small communications business in El Dorado Hills, testified that rising rates put her family “truly in jeopardy of becoming uninsured.”

Campbell, who turns 45 today, said the annual premium for a bare bones Blue Cross plan for herself, her husband and two young children was $2,520 in March 2003. The following March, it went up to $2,640.

This March, it went up another 20 percent, to $3,150. And in May, when her husband turned 51, the annual premium increased to $3,576.

Jerry Flanagan, with the Foundation for Consumer and Taxpayer Rights, said at the meeting that he had heard similar stories of frequent and steep rate hikes from Blue Cross members all over the state.

Questioned by regulators about the multiple premium increases in a single year, Blue Cross executive Deborah Lachman said certain changes in patients’ lives can trigger automatic rate hikes – marriages, births, and birthdays are some of the events that lead to increases.

“The level of our recent rate increases compare favorably with our competitors,” Lachman testified. “I can say with certainty premium increases were in no way tied to the merger.”

Regulators also questioned Blue Cross about another patient complaint – getting no advance notice before rates went up. Though Blue Cross executives said patients typically get notified of rate hikes 30 days in advance, Campbell was among the patients who said she was caught by surprise when premiums increased.

Currently, the Department of Managed Health Care does not have the authority to set health insurance premiums, said spokeswoman Lynne Randolph.

But the department does have the right to enforce its conditions for approving the WellPoint merger, which included a prohibition on rate hikes to pay for the deal. DMHC officials did not return calls Friday seeking comment on what steps the department would take against Blue Cross if regulators determine that premiums were raised in violation of the merger terms.

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