Blue Cross of California has drastically increased the "stop-loss" level--the limit on consumers' annual out-of-pocket medical expenses for covered services--for 58,000 buyers of individual medical insurance policies.
The action, announced in recent notices to policyholders, means that an individual will be liable to pay an annual maximum of $11,000 of his own medical expenses, rather than the previous typical limit of $1,300 to $2,100.
For instance, the 33,000 policyholders who own Blue Cross' Personal Prudent Buyer Plan 500 have been paying the first $500 of their expenses to satisfy the policy deductible, and then have been paying either 10% or 20% of their next $8,000 in covered services, depending on which doctors they used. Anything over $8,000 in covered services was paid by Blue Cross.
Deductible Going Up
Under the announced benefits change, the deductible is being raised to $1,000 and the policyholders will have to pay 20% of the next $50,000. Blue Cross will pay everything over that.
None of the changes affect participants in group health insurance plans under which the majority of adult California insureds are covered.
Mark Weinberg, Blue Cross senior vice president, said Friday that 97% of the policyholders affected by the change incur less than the old $8,000 "stop-loss" limit on medical expenses in a given year and thus will be affected financially only by the change in the deductible amount.
But for individuals with serious illnesses who have very large expenses, the change will be significant. Even though Blue Cross has not changed the premiums that policyholders will pay, such individuals will be out as much as 200% more in money spent for medical care.
Weinberg said that if Blue Cross had not changed its benefits, it would have had to adopt "a very large rate increase" to reverse a growing pattern of losses. He said that this would have been difficult for many of the policyholders to bear.
Everett Brookhart, chief deputy state insurance commissioner, said Friday that the state Insurance Department has received about 300 inquiries or complaints about the Blue Cross benefits change in the last 60 to 90 days.
But, he said, Blue Cross had conferred with department officials last July, well before initiating the changes, and were advised that they could go ahead.
"They're not in violation of statutes at all," Brookhart said. "They're perfectly within their rights."
Brookhart said the Insurance Department is satisfied that Blue Cross has been taking a big loss on the policies affected and that adjustments in such policies--by Blue Cross as well as other insurers--are justified.
However, Brookhart's superior, state Insurance Commissioner Roxani Gillespie, said in a separate interview that Blue Cross had originally wanted to set a flat limit on medical expenses over which it would pay nothing. She said the department had objected to this and Blue Cross decided not to implement it.
Blue Shield May Change
Meanwhile, a spokesman for Blue Shield of California said that it may initiate similar changes on some of its policies for individuals. It has 180,000 such subscribers.
"Industry average increases (on medical insurance) have been running between 20% and 30% during this year," said Blue Shield's Mike Odom. "We expect to run below that. Blue Cross and Blue Shield are among only a few companies offering individual coverage at all."
Blue Cross spokeswoman Jeannette Hartman gave this explanation of the announced changes in Blue Cross policies:
"Between 1984 and 1986, the consumer price index for medical services and goods rose by nearly 21%. In 1987 alone, the cost rose by 10%. Not only are prices going up dramatically but people are using more medical services. That makes it necessary for us to review our rates and benefits."
Brookhart, the Insurance Department official, said that Blue Cross officials conferred with the department July 10 and told officials that they were losing millions of dollars on policies held by between 75,000 and 100,000 of their half a million individual medical insurance buyers.
'Sick Pool' Phenomenon
"There's a phenomenon in the health care industry called a sick pool," he explained. "It gradually accumulates people who are sick and not liable to get better and would be unable to buy coverage outside their plan. The healthier people move off to less expensive policies, leaving certain buyer plans filled with sick people. And then on these plans, the insurers' losses mount."
"They talked to us about their alternatives," he said. "We felt that restructuring the benefits was the best of the alternatives. . . . We don't regulate their rates per se, but we advised them as best we could.
"They knew there would be an outcry no matter what they did."