SACRAMENTO — Heeding complaints from policyholders and consumer advocates, state regulators said Friday that they had intensified their investigation into whether recent Blue Cross of California rate hikes helped finance the company's sale to an out-of-state health insurer in a $21-billion deal.
"Our worst concerns have come home to roost," Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights testified Friday at a hearing held by the California Department of Managed Health Care. Flanagan's Santa Monica-based advocacy group was the first to raise alarms a year ago about the acquisition of Blue Cross' parent, WellPoint Heath Networks Inc. of Thousand Oaks, by Indianapolis-based Anthem Inc.
To win approval from state regulators, the combined company, now known as WellPoint Inc., pledged that Blue Cross' 7.6 million California policyholders wouldn't be saddled with any of the estimated $4 billion in expenses stemming from the deal -- including financing and legal costs and severance pay for retiring executives.
Consumer activists, citing anecdotal evidence gathered from policyholders, testified that some Blue Cross customers were being hit with rate increases of 20% to 40% on individual and family coverage.
"These rate increases are much greater than seen in the past and have to be explained," Flanagan said.
Cindy Ehnes, director of the Department of Managed Health Care, said her agency already had been reviewing Blue Cross' compliance with its merger-related promises -- and had received more than 70 consumer complaints in the process.
She said she picked up the pace of the inquiry after hearing the "the hue and cry about rate increases."
California Insurance Commissioner John Garamendi, who oversees about 10% of Blue Cross' business and at one point tried to block the WellPoint-Anthem deal, is pursuing a similar investigation into the company's post-merger rate hikes.
Blue Cross officials said they were cooperating with both inquiries.
Top Blue Cross executives repeatedly said during the hearing that premium increases that their company had imposed since March 1 were reasonable.
"The rate increases are in no way related to the cost of the merger," said Bryan Corley, a Blue Cross actuary. He blamed the higher premiums on increases in doctor and hospital treatment costs, more people using medical services covered by insurance, commissions paid to insurance brokers and other administrative overhead.
Corley said the increases, calculated before the merger was consummated Nov. 30, averaged 12.8% with individual basic rate increases capped at 23%.
He noted that the insurer's total costs last year rose 15.6% and were estimated to go up an additional 14.8% this year.
However, Deborah Lachman, Blue Cross' senior vice president for individual and small group coverage, conceded that many policyholders received much bigger bills, jumping in some cases by 50%. Customers who saw hikes of this magnitude, she said, probably had crossed a crucial age benchmark, moved to a new city or neighborhood or had children since their last policy renewal.
Although no regulator or industry groups track rates statewide, Corley and Lachman described Blue Cross' premiums as competitive with those of other health insurers. The Kaiser Family Foundation, a Menlo Park, Calif.-based healthcare think tank, said in a recent survey that average premiums for small businesses increased 11.5% in 2004, the smallest jump in four years.
During the often emotional 3 1/2-hour hearing, policyholders described what they saw as an industry trend toward insurer consolidation, decreased benefits and higher bills. As a result, they testified, monthly health insurance bills for many California families have climbed to more than $1,000 a month, creating a growing burden for middle-class and even upper-income families.
"The only people being squeezed here in the Anthem-WellPoint deal are those of us Californians who are families and who are individual business owners, just trying to make a decent living," said Tracy Campbell of El Dorado Hills, an upscale suburb of Sacramento.
Campbell, an owner of a small public relations firm, said that premiums for her family of four had jumped 20% to $525 a month for a high-deductible policy covering only catastrophic illnesses.
Campbell challenged the Blue Cross officials at the hearing to "be as responsible to us ... as you are to your shareholders."
Times staff writer Lisa Girion contributed to this report.