Insurer criticized for rates, sending funds out of state

Ventura County Star (California)

LOS ANGELES, CA — Blue Cross of California officials got an earful Tuesday at a public hearing where more than 100 people commented about how the company has been doing since 2004, when its parent company was taken over by an Indiana-based company.

About 450 people, including doctors, nurses, nonprofit representatives, Blue Cross officials and consumers crowded into what became a standing-room only meeting in Los Angeles.

“It is imperative that the corporate greed of Blue Cross be stopped,” Registered Nurse Janet Stephens told the three-member panel from the California Department of Managed Health Care. The panel included Director Cindy Ehnes; Braulio Montesino, head of the department’s legal services office; and Mark Wright, chief of the division of financial examiners.

Stephens said Blue Cross has been her insurer since 1990, when her monthly premiums were $252.

“I now pay $589 a month,” she said.

Expressing displeasure that Ehnes was out of the room when he wished to address her, the president of the California Coastal Rural Development Corporation, Herb Aarons, spoke anyway, blaming the state for approving the merger.

He said competition in Monterey County is now limited to two providers.

He described it as a “monopoly situation.”

“I’m asking you to regulate so we don’t have outlandish rates,” he said. “Leverage has gone from California to an Indiana-based company.”

The panel also was criticized for allowing Blue Cross President Brian Sassi to speak before the public did. Drawing applause, Jerry Flanagan, a patient advocate with the Foundation for Consumer and Taxpayer Rights, said Blue Cross should hear and respond to everyone, not just the department.

“When you have a public meeting,” he said, “it’s important that the public speaks first.”

Since the merger, the state department has fielded more than 1,600 complaints from healthcare providers and consumers about problems with Blue Cross, Montesino said. During the first six months of 2007, the department received 85 percent more Blue Cross provider termination requests than in all of 2005.

One of the questions the department is scrutinizing, he said, is why so many providers are threatening to leave the Blue Cross network since the merger.

Company earns praise

Not all of those in attendance Tuesday were critical of Blue Cross.

Some praised the company for providing services to the poor that would not otherwise be around.

Sweet Alice Harrison of Watson, Calif., pleaded with the state representatives not to take Blue Cross out of Watson.

“What’s going to happen to us?” she asked. “Blue Cross has to stay in California, because we now have a chance for good healthcare in California.”

Blue Cross also earned praises from Javier Guzman, health program adviser with the Chicano Youth Center in Fresno. Blue Cross, he said, is the only provider in the Central Valley that “understands the language and culture” of Latinos, and provides bilingual services.

“Blue Cross is not just a brand name in Fresno,” he said. “It has become part of the fabric of that community.”

The meeting was held to gather information. No decision was made Tuesday.

Financial concerns

One of the department’s big concerns is the flow of money outside the state, to Indiana, where WellPoint Inc., Blue Cross‘ new parent company, is based.

In 2004, Indianapolis-based Anthem Inc. purchased WellPoint Health Networks Inc., which was based in Thousand Oaks. The company became WellPoint Inc.

Blue Cross of California remains in Thousand Oaks.

At that time, WellPoint agreed to meet several requirements for the next three years to get the merger approved by the state. The hearing Tuesday was part of the state’s review of whether the company met those requirements.

One of those requirements restricted Blue Cross of California from transferring more than 79 percent of its operating income to the parent company.

Dividend transfers out of state have skyrocketed, and that’s been a red flag to the department. In 2005, dividend transfers totaled $518 million. In 2006, they were $537 million, and in just the first three months of 2007, they were $950 million.

Sassi said the dividend growth is a reflection of the company’s growth in membership, increased efficiencies and reduction in administrative costs.

Using a large display board to underscore his message, Flanagan showed the panel and audience numbers he believes show Blue Cross has violated its promise not to transfer more than 79 percent of its in-state business operating income out of state.

He said the company is making the transfers not just with dividends, but also by over-billing its sister companies for management and service agreements.

“Affiliates want to overcharge and Blue Cross wants to over-bill to transfer money out of California,” he said.

In turn, the sister companies, Flanagan said, are transferring billions to the parent company each year.

“That’s exactly what they promised not to do,” he said. “Blue Cross is treating California like an ATM machine.”

In the days after the hearing, the department will examine the dividend payments, said department spokeswoman Lynne Randolph. The most severe consequence to the company would be an extension of the merger agreements with the state, she said.

“Meaning they would still have to comply with some of the strict reserve requirements,” she said.