Blue Shield of California has notified about 1,500 members of six University of California alumni associations that their group medical insurance policies are being canceled, effective Dec. 1.
Although letters telling the policyholders of the cancellation gave no reason for it, a Blue Shield spokesman said Monday that claims under the policies had risen so dramatically that a 60% rate increase would have been needed to continue the policies.
Rather than implement such an increase, spokesman Michael Odom said, it was decided to do away with what he said had been a unique coverage plan.
Most group policies involve employees and their families who are covered through their business firms, or students covered by virtue of attending a certain college.
Must Join Association
But under the University of California alumni association plans, graduates of the campuses involved were guaranteed acceptance for coverage if they joined their alumni associations and applied within 90 days of graduation. The group coverage had been offered since 1979.
The policyholders were told in the three-paragraph letter from Blue Shield that they could apply for individual coverage, which would require each policyholder to provide a health statement. Then Blue Shield would decide whether the applicant qualified for coverage.
Or, as an alternative, the letter said, the policyholders would automatically qualify for a conversion plan. The letter did not mention that under the conversion plan their benefits would be reduced.
Many From UCLA
Involved in the cancellations are members of the alumni associations from UCLA, Irvine, Davis, Santa Cruz, San Diego and Santa Barbara. Odom said the "vast majority" of canceled policyholders are members of the UCLA association.
Herb Livingston, a broker who dealt with many of the UCLA policyholders, said Monday that he had been warned of the cancellations by Blue Shield officials who, he said, expressed exasperation with what they termed the inflation of claims.
"They originally offered the policy because they thought it was good public relations," Livingston said. "But recently, I was told by one (Blue Shield) official, 'We've had it with these groups. We can't put up with them anymore.' "
Odom, however, said the insurer believed that there was little interest in the group coverage, because the number of policyholders was not increasing.
"It sounds like we cut them off," Odom said, "but it's not true. . . . A letter will be going out, outlining the problem and offering new options. If they qualify for individual coverage, it will be at a much more affordable rate than would have been the case had they continued in the old program."
Neither Odom nor Livingston could give rate figures, however, since they said these would vary substantially, depending on the age of the policyholders, the number of family members covered and so forth.
The cancellation letter told the policyholders that they could obtain information on their options by contacting Blue Shield at a designated telephone number.
However, calls to this number Monday found the company representative willing to say only that the broker would send out a letter soon telling the policyholders what they could do.
A number of health insurers have increased their group rates in recent months. In May, for example, Blue Cross of California, the state's largest health insurer, disclosed that it was notifying 7,000 small- and medium-sized companies, employing a total of about 500,000 people, that their premiums would rise an average of 18.6% beginning June 1. Blue Cross also moved to reduce certain benefits, such as for pregnant women.
Blue Shield Increase
At the same time, Blue Shield, which insures about 1.3 million Californians, said rates for group insurance could go up about 15% this year.
However, Odom said Monday that there has been no general 15% increase at Blue Shield.
"Every group is rated and reviewed separately, based on its claims experience," he said. "Rate increases are not uncommon."
But with the California alumni group plan, the projected increase was much greater than with most other groups, he said, adding that he did not know the reason.
"People in the alumni group were aware of problem," Odom said. "Where you have a program, where the program can't pay for itself, then you've obviously got to do something."
A policyholder who called The Times to complain about the cancellation, Ron Katz of Los Angeles, said, however, that the Blue Shield action had come as a surprise to him and other policyholders he knew.