State hearing on Blue Cross

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The San Francisco Chronicle

State regulators will hold a public hearing today in Los Angeles to investigate criticisms that have surfaced about Blue Cross of California since the 2004 acquisition of its parent company by a Midwestern health insurer.

Officials from the state Department of Managed Health Care will hear complaints about premium increases, canceled policies, physician reimbursement rates and transfers of money out of California after the $16.4 billion purchase of Blue Cross‘s parent, WellPoint Health Networks Inc., by Anthem Inc.

The company, based in Indiana, now uses the name WellPoint Inc. and is the nation’s largest health insurer.

The deal was controversial from the start. The Department of Insurance initially withheld approval but signed off after WellPoint agreed to a series of conditions, including a promise not to finance the transaction, including large executive severance packages, with premiums from California policyholders.

Today’s hearing was prompted in large part by the more than 1,600 complaints against Blue Cross received by the Department of Managed Health Care over the last three years.

Officials from the department, which oversees the state’s health maintenance organizations, said Blue Cross grievances account for nearly 40 percent of all HMO complaints in California. About 1,200 of those came from physicians upset about payment and contracting issues. Policyholders complained about premium increases and coverage problems.

In addition, the hearing will address a $950 million dividend Blue Cross gave to its parent company earlier this year. The department is concerned the payment might have violated the agreement, which governs how much money the insurer can transfer out of state until November.

“The public hearing will contribute to our evaluation of the company’s compliance with the merger agreement,” department spokeswoman Lynne Randolph said. “Did they keep the promises they made to California in order to secure the terms of the merger?”

No official action is expected today. If the state determines the insurer violated terms of the merger, it could impose fines or take a number of other actions.

Brian Sassi, president of Blue Cross of California, said Monday that the insurer has complied with all aspects of the merger agreement.

The agreement governing the transfer of money expired last year, not this year as regulators contend, he said.

“We were certainly within our rights,” he said. “Taking the $950 million dividend still left us adequately capitalized and far in excess of what is required by the state.”

The Foundation for Taxpayer and Consumer Rights, a consumer group, plans to testify that up to $6.5 billion in out-of-state transfers were made between 2004 and 2006. Neither Blue Cross nor the department had seen the group’s analysis and both declined to comment.

The California Medical Association will also urge the state to take action against Blue Cross.

The doctors’ group said the insurer reimburses doctors at “unconscionably” low levels. It also criticized Blue Cross‘ policies toward patients, including alleged refusals to pay after treatments had been authorized and cancellations of individual policies.

In March, the Department of Managed Care fined Blue Cross $1 million for routinely rescinding policies of individual members who filed claims. The company denied wrongdoing but said it changed its rescission policies.
E-mail Victoria Colliver at [email protected].

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