Anthem merger costs at issue
SACRAMENTO, CA — Health insurer Blue Cross of California defended its 2005 rate increases Friday amid charges that more than $4 billion in costs tied to its November merger with Anthem Inc. were passed on to individuals and small-business owners in the form of higher premiums.
State Managed Health Care Director Cindy Ehnes, who oversaw the public meeting on Blue Cross premiums, vowed to vigorously pursue the investigation into whether Blue Cross violated its agreement with the state that allowed the merger to go forward.
Blue Cross provides health insurance to more than 100,000 San Joaquin County residents.
“This administration is committed to ensuring available and affordable coverage,” Ehnes said while making it clear she takes seriously concerns voiced by Blue Cross policyholders about unexplained rate increases as high as 50 percent, lack of notification and vague explanations of affordable options.
Kevin Donohue, senior counsel for the Department of Managed Health Care, explained that his agency’s investigation is focused on just one of about two dozen “undertakings” that Blue Cross must fulfill in its agreement with the state.
“Blue Cross and Anthem have promised that none of the merger-related costs will be factored into the rate increases,” he said.
Blue Cross executives made it abundantly clear in their testimony and a written statement that the rate increases were planned before the merger occurred and were unrelated to the cost of combining WellPoint Health Networks Inc, which operates under the Blue Cross name, and Anthem. The merged company adopted the WellPoint name.
“These rate increases are not related to merger of the company’s parent, the former WellPoint Health Networks Inc. with Anthem Inc., in any way,” the statement said.
That was reiterated by Blue Cross executives Deborah Lachman and Bryan Curley, who provided state officials with background and actuarial information on what goes into determining rate increases.
After factoring in the cost of medical services, new technology, pharmaceuticals and the overall utilization of each, Blue Cross and most other insurance carriers consider the age, residence and family status of the policyholder. For instance, rates increase for every five years a person ages or when a family member is added to a policy.
Consumer advocate Jerry Flanagan said Blue Cross broke its promise not to raise rates to pay for the costs associated with the merger, including $265 million in cash bonuses paid to company executives.
“Governor Schwarzenegger should look past the nearly $150,000 in campaign contributions he has received from Blue Cross and protect California patients who are struggling to afford their health insurance,” said Flanagan with the Foundation for Taxpayer and Consumer Rights.
“This is an historic opportunity to pull the plug on unjustified rate increases, but it should not stop here. All health insurers should be required to justify their rate increases like auto and home insurers already do,” he said.
Flanagan submitted 10 questions to state regulators and Blue Cross officials that he believes must be answered to show that the rate increases were not caused by the merger costs.
Stockton resident Irene Arnold, a part-time school employee who pays individually for her own bare-bones Blue Cross policy, wrote in a statement to the department:
“As a parent trying to provide coverage for my children, big rate increases mean I can’t afford other items for our children such as schooling needs and clothing.” Arnold faces a premium increase of almost 17 percent June 1, and she’s considering changing carriers.
Flanagan said that it is Blue Cross‘ 850,000 individual policyholders “” unorganized and unknown to each other “” who bear the brunt of the rate increases.
“Following the merger, we contend all those rate increases deserve greater scrutiny. The value of today’s meeting will be measured in the follow-up,” he said.
Ehnes said after the meeting that her department should conclude its investigation within several months.