Insurance Commissioner Dave Jones in one his first acts in his position called on Blue Shield of California on Thursday to delay planned rate hikes for individual health insurance policies while his department reviews what he called “stunning” increases for financially struggling Californians.
Blue Shield is pursuing a series of rate hikes over five months that would mean an average increase of 35 percent for 193,000 individual policyholders in California, with as many as a one-quarter of policyholders seeing hikes higher than 50 percent, according to the company.
The first increase occurred in October, a second on Jan. 1 and a third is scheduled for March 1.
Blue Shield issued a statement blaming the hikes on increased medical costs, sicker policyholders and healthier people dropping coverage because of the economy. Even with the increases, the company said it expects to lose tens of millions of dollars on its individual policies in both 2010 and 2011.
At a news conference in Sacramento, Jones said, “These premium increases will impose significant financial burdens on struggling families and, in some cases, will lead to the loss of health care coverage altogether.”
Jones, who was sworn into office Monday, said he sent a letter to Blue Shield Chief Executive Bruce Bodaken asking him to delay increasing rates for 60 days beyond the planned March 1 rate hike. He said his request includes halting the increases that took effect Jan. 1.
Bodaken was on a plane and unavailable to respond immediately, Blue Shield spokeswoman Mary Taing said.
The company’s statement said the increases “have almost nothing to do with the federal health reform law” and that the federal laws ultimately will help by expanding the pool of policyholders, instituting cost and quality controls, and providing incentives for preventive care.
Drastic rate hike proposals in California last year served as national fodder for federal lawmakers promoting the Affordable Care Act, which was signed into law last March. Anthem Blue Cross initially proposed a 39 percent increase last spring, with other insurers suggesting similar rates.
The companies ultimately settled on average rates ranging between 14 and 18 percent.
Jones said the situation underscored why, as an Assemblyman, he had pushed for six years to give the state insurance commissioner the power to regulate insurance rates and reject those deemed excessive. Last year, Jones co-sponsored a bill with that language that was voted down by the Legislature on the last day of the session.
The commissioner only has the power to disapprove policies if less than 70 percent of premium revenue was spent on health care costs — generally considered a low threshold.
Two new consumer protection laws took effect Jan. 1, however.
A new state law — one that succeeded when Jones’ bill failed — requires insurers to publicly disclose their proposed rates and to include a certification by an independent actuary that the increase is actuarially reasonable or not.
A new federal law also requires insurers to spend at least 80 percent of premium revenue from individual insurance plans on health care costs (or 85 percent for group plans) or pay consumers a rebate. On Monday, Jones issued an emergency regulation giving the state the same authority.
Taing said Blue Shield’s new rates meet the federal requirement that 80 percent of premiums are spent on health care expenses.
The Blue Shield controversy prompted U.S. Health and Human Services Secretary Kathleen Sibelius to weigh in, issuing a statement that she has contacted Jones to offer assistance if needed.
“The people of California have a right to be concerned when they see this kind of rate increase month after month,” she said.
Sibelius said the federal Affordable Care Act — which Republicans in the House of Representatives have vowed to repeal next week — is aimed at protecting consumers from such rate hikes.
“If the law were repealed, we would be left with few tools to protect consumers against these kinds of rate increases,” Sibelius said. “Insurers would be able to spend more on profits, marketing, and CEO bonuses, instead of care.”
Jones said other insurers have filed their newest individual policy rates with his office but he hasn’t had a chance yet to review them. He said he expects other companies to follow Blue Shield’s lead.
An Anthem Blue Cross spokesman told the Los Angeles Times this week that the company expects to raise rates an average of 9.8 percent for individual policyholders, effective April 1, after raising rates in October an average of 14 percent.
Other insurers also raised rates substantially in October. Blue Shield of California’s average increase for individual policyholders was 18 percent and Health Net’s increase was 16.5 percent.
Health Net spokesman Brad Kiefer said Thursday that the company increased rates for its 40,000 individual policyholders in California by just 4 percent on Jan. 1.
“We don’t expect to evaluate our rates again until the fall,” he said.
While insurers were only required to file their individual policy rates with the state, brokers said they were seeing similar hikes in group policies.
Blue Shield spokesman Tom Epstein said last fall that rate hikes were due to hospital cost increases of nearly 20 percent, prescription drug increases of about 15 percent and physician cost increases of 9 percent to 10 percent.