Blue Cross should prove that premiums have not been used to finance recent merger with Anthem Inc.

Santa Monica, CA — The Foundation for Taxpayer and Consumer Rights (FTCR) submitted a Public Record Act request to the California Department of Managed Health Care (DMHC) today calling on the regulator to release documents providing proof that Blue Cross of California premiums have not been used to finance the company’s recent merger with Anthem Inc. Blue Cross is currently under investigation by state regulators for dramatically raising rates following the merger.

“California patients and business owners have a right to know whether our premiums have been used to pay for $265 million in executive bonuses and $4 billion in merger related costs,” said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights. “The burden is on Blue Cross, WellPoint and regulators to prove that 20-30% rate increases have not been used to finance the recent merger. The public will be the judge.”

Prior to receiving regulatory clearance for its recent merger, Blue Cross‘ parent company, WellPoint, made legally binding commitments to state regulators not raise rates to pay for merger expenses which include at least $265 million in cash bonuses for company executives and $4 billion in financing costs. The DMHC held a hearing in Sacramento last Friday to investigate rate increases following a request made by FTCR. In a letter to the DMHC sent on April 18th calling for the investigation, FTCR cited widespread complaints of rate increases of 20%-30% and more.

Read FTCR’s Public Records Act request.

Documents filed by state health plans this week show that Blue Cross has overcharged consumers by over $3 billion since 1996. FTCR called on DMHC to adopt new rules requiring companies to justify overhead costs including reserves and to provide refunds to patients for excessive rate increase. The analysis by FTCR reviewed quarter filings of California’s 7 largest health plans
is available for download here.

Auto and property/casualty insurers have been required to justify rate increases to the elected Insurance Commissioner since Proposition 103 was approved by voters in 1988. Under Prop 103, the Insurance Commissioner must deny unfair, excessive or discriminatory rate increases. Though 26 states require some oversight of health insurance rate increases, no such requirements exist in California. However, the Blue Cross merger agreement gives explicit authority to the DMHC to assure that merger related costs have not been passed on enrollees.

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The Foundation for Taxpayer and Consumer Rights (FTCR) is California’s leading nonpartisan consumer advocacy organization.