Insurer Was Under Pressure To Moderate Stance

Blue Shield of California had the numbers to support its third rate hike on its 194,000 individual policyholders in the past seven months, but apparently overwhelming public disapproval prompted the abrupt cancellation of the last increase this week.

The San Francisco-based insurer announced Wednesday it would back off the rate hike scheduled to go into effect on May 1, and would impose no further rate increases on its individual policyholders in 2011.

"As long-time advocates for universal healthcare coverage, we are also deeply committed to the success of health reform. The best way to fulfill our mission and make reform work is to keep costs down,” said Blue Shield Chief Executive Officer Bruce Bodaken.

“By agreeing not to raise rates this year, we are helping to make coverage more affordable for our members during tough economic times. It's a financial risk for us, but a risk that's worth taking."

Blue Shield said foregoing the rate hike would save its individual policyholders between $35 million and $40 million this year. However, the insurer claims its losses in 2011 from this segment would top the $27 million hit it took in 2010, noting that skyrocketing medical costs are among the reasons for the mounting losses.

Blue Shield’s latest rate hike was to average 6.5%, bringing the cumulative average increase per policyholder to 30% since last fall.

However, the Los Angeles Times reported last week that hundreds of enrollees would see their premiums climb more 80% or more when all three rate hikes were factored together, and nearly a quarter of its customers would experience increases exceeding 50%.That disclosure was an apparent tipping point for Blue Shield’s decision makers, according to some observers.

“There was a lot of public shock that this could be happening,” said Judy Dugan, research director for Consumer Watchdog, a Santa Monica-based advocacy group that organized a protest at Blue Shield’s headquarters earlier this year over the premium increases. The group has also been critical of Blue Shield’s mushrooming cash reserves, which total about $2.3 billion, up from $400 million in 2002.

Dugan said Blue Shield’s reserves – which are about four times the amount legally required for solvency purposes – are not being used for the purpose of protecting the insurer from economic uncertainties or a catastrophic avalanche of medical claims.

“It continued to grow even in the deepest part of the recent economic downturn,” she said.

In addition to the public protest, California Insurance Commissioner Dave Jones confirmed that his office had received more than 1,000 individual complaints from consumers about the rate hikes.

All of this appeared to contribute to Blue Shield’s sudden about-face on the issue after steadily insisting for months that the rate hike would be imposed – although it had made some incremental concessions as to when it would occur.

At the behest of Jones, Blue Shield agreed to wait 60 days and have outside actuary Axene Health Partners verify its justification for the hike – after originally stating it would implement the rate hike and issue refunds to consumers if Axene found anything amiss with its actuarial data.

However, Axene – which gained prominence last year when concluding that a rate hike by Anthem Blue Cross was not actuarially justified – concurred with Blue Shield’s numbers late last month. As recently as last weekend, Blue Shield had issued public statements saying the rate increases would be imposed as scheduled.

“Today’s news is a welcome development and certainly a relief for several hundred thousand of Blue Shield policyholders in California,” Jones said at a hastily arranged press conference on Wednesday. “But, it reminds us all that insurance companies hold all the cards when it comes to setting rates. Blue Shield policyholders still had to pay the first two rate increases. Those with health insurance are at the mercy of insurance company decisions to raise rates multiple times each year.”

Jones said his office was sponsoring AB 52, legislation that would allow regulation of rate increases.

Authored by Assemblyman Mike Feuer, D-Los Angeles, the bill is currently in an abbreviated form, but in general would permit both Jones’ agency and the Department of Managed Health Care authority over hikes in premiums, co-payments and deductibles.

Jones had authored similar bills when he served in the Assembly until last year, but the legislation was repeatedly defeated in either committee or by the Legislature.

It remains unclear how Blue Shield’s action would affect rate increases scheduled between April 1 and June 1 for individual policyholders who purchase coverage from Anthem Blue Cross of California, PacifiCare and Aetna.

Anthem and Aetna spokespersons said their increases – averaging 15% and 2.8% respectively – were still pending. A PacifiCare spokesperson said it was confident its increases, which average about 7.5%, will be applied.

Anthony Wright, executive director of the advocacy group Health Access and a member of the Payers & Providers editorial board, was hopeful that Blue Shield’s decision would prompt other insurers to “reassess what rates are justified and reasonable in these tough economic times.”

Wright also voiced support for Feuer’s bill.

“The insurers should have to go through a rate review process, and provide justification for those rates. And what we ultimately need is a regulator willing to inject themself into the process if the rates are proven to be unjustified,” he said.

Dugan remained skeptical that Blue Shield’s actions would lead to a wholesale stoppage of regular premium increases –instead, she observed, it may work more as a trial balloon than fiat.

“They have nothing to lose by putting up these rate increases and seeing how they fly,” she said.