Santa Monica, CA — After months of review the California Department of Managed Healthcare (DMHC) concluded that double-digit rate increases to Blue Cross of California (BCC) members were not the result of the insurer’s merger with Anthem. BCC promised not to raise rates to pay for more than $4 billion in costs associated with its recent merger. The DMHC announced that “Blue Cross‘s premium increases are distressing for policyholders and those concerned with the rising cost of healthcare,” yet failed to act on behalf of BCC enrollees. Many BCC enrollees have received two rate increases since the beginning of 2005, some as high as 50%, and many without notification.
The head of the DMHC is a Schwarzenegger appointee. Blue Cross of California and its affiliates have donated over $234,000 to campaign committees controlled by the Governor, nearly $100,000 of that coming since May 2005 when the Department first began to investigate the merger. The company is Schwarzenegger’s 30th largest donor.
“The Schwarzenegger administration missed a historic opportunity to protect consumers and reign in a voracious industry, instead they served up a nice fat Thanksgiving turkey for HMO executives.” said David Fink of the Foundation for Taxpayer and Consumer Rights (FTCR). “It’s not surprising the DMHC used the holiday lull in news coverage to hide the fact that they’ve failed patients. This is a big Thanksgiving feast for Schwarzenegger’s 30th largest donor and not even scraps for overcharged patients.”
Prior to receiving regulatory clearance for its merger, Blue Cross‘ parent company, WellPoint, made legally binding commitments to state regulators not raise rates to pay for merger expenses. The Department of Managed Health Care (DMHC) scheduled public hearings to investigate rate increases following a request for an investigation made by FTCR.
“Most troubling is that the so-called independent actuary is a former HMO accountant for PacifiCare who failed to even examine the truthfulness of Blue Cross‘s actuarial assumptions about medical cost inflation and administrative costs,” said FTCR president Jamie Court. “This is a white wash for one of Schwarzenegger’s biggest donors. An actuarial review that does not test the efficacy of Wellpoint’s actuarial assumptions is worthless.”
Merger-related costs and post-merger expenses:
* Blue Cross and WellPoint executives will receive at least $265 million in bonuses as a result of the merger. With stock awards included, total executive bonuses could top $600 million.
* Financing costs associated with the merger are approximately $4 billion.
* In April, 2005 WellPoint reported that post merger profits had increased 107% over the first quarter of 2004.
* WellPoint recently paid $185 million in cash to purchase Lumenos, a company specializing in high deductible and other “consumer driven” health plans.
* 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.
Read FTCR’s Ten Key Questions for Blue Cross and DMHC at: http://www.consumerwatchdog.org/healthcare/pr/?postId=4426
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The Foundation for Taxpayer and Consumer Rights (FTCR) is California’s leading nonpartisan consumer advocacy organization.
