Governor and Insurance Commission Called on To Investigate Double-Digit Premium Increases in Wake of $4 Billion WellPoint/Anthem Merger

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Consumer advocates called on Governor Schwarzenegger and Insurance Commissioner Garamendi to investigate double-digit rate increases being imposed on Blue Cross customers in a letter sent today. State officials must ensure that Blue Cross and its parent company, WellPoint, are honoring their commitment to not charge Californians for costs resulting from its recent merger with Anthem, the Foundation for Taxpayer and Consumer Rights said.

The nonpartisan nonprofit FTCR cited legally binding commitments made to the state, prior to giving regulatory clearance to the merger, that an estimated $265 million in executive bonuses and $4 billion in financing charges would not be passed on to patients and business owners. The merger created America’s largest health insurance company. FTCR noted that two WellPoint executives also received salary increases this year of 15-20%.

In the letter, which included profiles of Blue Cross patients who have received rate increases of over 20% as well as benefit reductions this year, FTCR wrote:

“You must now investigate these rate increases and force the company to refund any overcharges resulting from the $4 billion in financing costs, executive bonuses and other costs associated with the merger. The legally binding agreements you signed with company executives give you the authority to act. Your duty to protect California patients demands it.”

In recent months, patients and business owners around the state have contacted FTCR frustrated by massive rate increases to their Blue Cross policies. The group is conducting health care town halls throughout the state with patients, business owners, doctors, nurses and hospital executives. The goal of these convenings is to find solutions for affordable health available to all Californians. A consensus theme from these events is the need to rid the health care system of waste and inefficiency. The California Medical Association, California Nurses Association and business owners opposed the excessive executive pay-outs associated with the merger.

Letter to the Governor:
Monday, April 18, 2005

Governor Schwarzenegger
State Capitol
Sacramento, CA 95816

John Garamendi
Department of Insurance
300 Capitol Mall, Suite 1700
Sacramento, CA 95814

RE: Investigate Excessive Blue Cross Premium Increases

Governor Schwarzenegger and Commissioner Garamendi,

It has been five months since you approved the merger of Blue Cross‘ parent company, WellPoint, with Anthem Inc. which provided hundreds of millions of dollars in bonuses to company executives. Though the CEOs promised that California would not pay the price of this merger, Blue Cross patients have been stuck with unprecedented rate increases of 20-50% as well as benefit reductions.

On top of multi-million dollar bonuses, company executives received big raises this year. For example, WellPoint President & CEO Larry Glasscock will receive a 15.5% raise in salary in 2005. Another WellPoint executive, Keith Faller, will receive a 20% increase in pay.

You must now launch investigations and force the company to refund any overcharges resulting from the $4 billion in financing costs, executive bonuses and other costs associated with the merger. The legally binding agreements you signed with company executives give you the authority to act. Your duty to protect California patients demands it.

Those that need your help include:

Jerry & Dorothy Walsh, Irvine, CA — 23% rate increase

Jerry and Dot’s Blue Cross premium increased 23% this year, up to $799 per month, compared to $650 per month as of last March.

Mr. Walsh wrote in an open letter to Commissioner Garamendi:

When everyone talks about the crisis in the costs of medical care delivery, why does no one ever look at the annual report statements of many of these insurance providers’ reports which year after year announce huge increases in profits?

How much of our health care dollar is going to corporate profits? How many more people just got priced out of the medical insurance market?

Maybe it’s mostly corporate profits and greed which are the cause of the incredible hikes in health insurance costs. Is there any hope that the medical care delivery crisis can be solved as long as corporate profits take precedence over health issues?

Art Letter, San Diego, CA — 23% increase

A self-insured consultant, Art served on an independent health commission in the early 1980s that provided oversight of health care costs. The commission was eventually dissolved and its duties supposedly absorbed by the government.

Despite his expertise on health care issues, Art did not have any choice but to cut back on his health coverage when he received a 23% premium increase from Blue Cross this year.

The time is now, Art says. While some health care insurers and providers are on the level, “for the most part these people are ripping off the system in an incredibly ugly and arrogant way.”

The Brown Family, formerly of the Bay Area — 27% increase

The Brown family’s premium increased 27% over last year’s rates, up to $300 per month as of March 15 of this year. “They didn’t even warn me!” writes Brad Brown. “The single greatest issue facing us today is out-of-control health care costs. I don’t know how long we can keep paying these giant fees.”

Brad, a self employed licensing agent, and his wife recently moved from the Bay Area with their two children to Massachusetts hoping to find a better place to live and do business — including affordable health care.

At a time when 6.5 million people in the state cannot afford health insurance and countless more are forced to cut back on coverage, we cannot allow the nation’s largest insurer to break its promise to California.

You have the power to protect California, use it.


Jerry Flanagan
(310) 392-0522 ext. 319

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The Foundation for Taxpayer and Consumer Rights is the state’s leading nonpartisan consumer advocacy organization.

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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