Consumer Watchdog: Billions in Blue Cross Profit Transfers to Out-of-State Parent Should Spur Insurance Commissioner To Bar Rate Hikes

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Citing Public Mistrust, Group Calls For Release of All Documents Obtained in Commissioner’s Investigation of 39% Premium Increases
Sacramento, CA — Consumer Watchdog today condemned Blue Cross’s transfer of $2.8 billion to its parent company since 2007, including approximately $719.5 million in 2009 alone, as a way of hiding its true financial condition from regulators scrutinizing steep rate hikes.  Consumer Watchdog said Insurance Commissioner Steve Poizner should seize on the transfers to invalidate recent premium hikes and should make Blue Cross documents available for public scrutiny.
Blue Cross of California maintains a surplus $1 billion more than the law requires for financial safety, and the company transferred $4.8 billion in dividends to its parent company, WellPoint Inc., located in Indiana, since the company merged with Anthem in 2004.
Consumer Watchdog testified today at a special legislative hearing in Sacramento on the Blue Cross rate increases, which have ignited a firestorm of public outrage since they were announced several weeks ago. The consumer group presented financial information (see chart below), which it said Poizner should consider in his review of recent premium increases of 39%.
Health Policy Director Jerry Flanagan called for a new law requiring health insurers to get prior approval before applying any proposed rate increases, just as California already regulates auto and home insurance rates. President Obama called Monday for similar health insurance rate regulation in all states.
But in the short term, said the group, Insurance Commissioner Poizner must use his existing authority to bar increases in excess of what the current law allows. The Commissioner must also release all actuarial and other documentation provided to his office by Anthem Blue Cross to justify premium increases totaling 10 times the rate of health care inflation, said Consumer Watchdog, which routinely analyzes such documents when auto and home insurers request a rate increase.
“A transparent and public process for reviewing the proposed rate increase will be essential to rebuilding public trust in our health insurance system and confidence in government’s ability to protecting California consumers against health insurance rate increases that undermine the public health and safety and the state’s economic recovery,” said Jerry Flanagan of Consumer Watchdog.
Consumer Watchdog, which has successfully challenged excessive premium increase requests by auto, home and small business insurers for two decades under the authority of voter-approved Proposition 103, asked to examine Blue Cross actuarial and other data to determine whether the company has attempted to mislead regulators and the public, or sought to use out-of-state financial transfers to justify in-state premium increases.
A California regulation governing a portion of Blue Cross’s business in California, adopted by the Insurance Commissioner in December of 2006 in the wake of previous large premium increases by Blue Cross, requires that insurers spend at least 70% of subscriber premiums on health care. In 2004, before passage of the 70% requirement, Blue Cross spent only 51% of premiums from individual policies on health care, leaving the rest for overhead and profit.
Consumer Watchdog called for the insurance commissioner to demand “a thorough accounting of every dollar held in surplus by Blue Cross … to ensure that Blue Cross Life & Health is not cooking its books to create the appearance that it is meeting the 70% medical loss ratio requirement.” Medical loss ratio is insurance-speak for what the corporation spends on subscribers’ medical care relative to non-medical expenses like overhead and executive salaries because the provision of care is considered a “loss” to for-profit insurers’ bottom lines and share prices.
Blue Cross Financial Information
Since just 2007, Blue Cross Life & Health (“BC L&H”), regulated by the Department of Insurance, and Blue Cross of California (“BCC”), regulated by the Department of Managed Health Care, have transferred $2.8 billion in dividends to parent WellPoint.  
Consumer Watchdog said Commissioner Poizner’s audit must scrutinize both California companies and their parent corporation. If the audit fails to review the DMHC-regulated company, or the dividends transferred to WellPoint, Blue Cross could very easily evade the 70% medical loss ratio simply by transferring funds to a bank account controlled by one of its affiliates, or WellPoint, the Indiana based parent company.  
For example, the DMHC-regulated Blue Cross of California has transferred $2 billion to WellPoint since 2007 and reports more than $1 billion in excess “tangible net equity.” In addition, between 2003 and 2007, the DMHC-regulated company paid between $2 billion and $3 billion each year to affiliated companies in the form of “service contracts.”  These fund transfers must also be scrutinized to ensure that the company is not disguising profits as payments for services to its affiliated companies in order to evade the 70% medical loss ratio requirement.

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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