California health insurance regulators have ordered independent reviews of rate hikes being sought by four of the state's largest insurers, a move that could lead to smaller increases for consumers.
The action comes after an outside analysis found significant errors in a recent rate filing by Anthem Blue Cross, leading it to cancel increases of as much as 39% for hundreds of thousands of policyholders.
The reviews, to be announced Wednesday by the California Department of Insurance, will scrutinize rate increases proposed for many of the 2.5 million individual health policy holders who do not get benefits through employers or Medicare.
"Consumers are facing steep increases in their health insurance rates at the time they can least afford them," said Darrel Ng, a department spokesman. "We want to make sure that all of the filings follow state law."
Outside examiners will look at rate hikes sought by Anthem, Aetna, Blue Shield of California and Health Net, all major players in California's individual health insurance market.
The insurers said they were certain their rates would withstand review.
"We believe we've done a very thorough and careful rate filing," said Blue Shield spokesman Tom Epstein.
Blue Shield is seeking rate hikes averaging 18% for its 240,000 individual policyholders. Aetna is asking for an average 19% boost for its 65,000 individual customers.
Health Net declined to discuss its rates. Anthem said it would file a revised plan for its estimated 800,000 individual policyholders next month, and state officials say it will be reviewed at that time.
Insurance analysts said that consumers could be the big winners.
"My expectation is that the increased scrutiny by an independent actuary is most likely to lead to lower rate increases," said Gerald Kominski, associate director of the UCLA Center for Health Policy Research. "Having to justify the actuarial basis for these rates puts the burden of proof back on the insurer."
The drive for outside review of rates grew out of Anthem's proposed increases, which triggered public outrage and prompted Insurance Commissioner Steve Poizner to order an inquiry.
He hired actuarial firm Axene Health Partners to determine whether Anthem met the state's requirement that 70% of premiums be spent on medical claims. Axene found that one of Anthem's insurance plans failed to meet that standard.
But Axene also found errors in the way Anthem calculated its rates, a finding that led the company to cancel its overall rate increase. Anthem acknowledged the mistakes and said its revised proposal would mean more modest hikes.
"We're being very diligent and careful about this," said Brad Fluegel, chief strategy officer for Anthem's parent company, Indianapolis-based WellPoint Inc. "We plan to be as transparent as possible."
Poizner is expected to announce that Axene is participating in the reviews. Blue Shield and Aetna said Tuesday that Axene had begun the work and that they were cooperating.
Both say they are trying to avoid Anthem's mistakes.
San Francisco-based Blue Shield said it reviewed Axene's report on Anthem before submitting its proposal in April. Aetna said it conducted "multiple" reviews before submitting its rates in March and then performed another test based on Axene's report.
"No errors or issues were identified during these reviews," said Cynthia Michener, a spokeswoman for the company in Hartford, Conn.
Health Net predicted that it would pass the review.
"It's important that the public have confidence that the rates they are charged have been calculated in full compliance with the law," said spokesman Brad Kieffer of Woodland Hills-based Health Net, which has 362,000 individual and small-business customers in California.
Health industry experts said the state's tack was a prelude to the new federal healthcare law. It gives the U.S. Health and Human Services secretary authority to review "unreasonable increases in premiums" and requires insurers to justify such hikes.
"It will mean that carriers will be a little more careful," said Marian Mulkey, director of the Health Reform and Public Programs Initiative at the California HealthCare Foundation. "They will be a little more on their toes. And that can only be good."