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WellPoint rates face new scrutiny from state and federal officials

The move to investigate the health insurer's premiums follows an insurance consultant's report that the firm used flawed methods to justify hikes in California, which were canceled.

May 06, 2010|By Duke Helfand, Los Angeles Times

State and federal officials moved Wednesday to investigate insurance giant WellPoint Inc.'s massive rate hikes in California, saying the company may have used inaccurate or faulty information to justify increases it canceled last week.

The officials are challenging WellPoint's assertion that flaws in health insurance rate filings by its California subsidiary, Anthem Blue Cross, were "inadvertent."

WellPoint abruptly withdrew the rate increases of as much as 39% for many of Anthem's 800,000 individual policyholders in California after a state insurance consultant found that it overstated future medical costs used to justify them.

In response to the latest criticism, the insurer maintained that its rates across the country are sound, justified and comply with all regulations. A company spokeswoman said the errors that led to the California rate hike cancellation were unique.

But on Wednesday U.S. Sen. Dianne Feinstein (D-Calif.) called for congressional hearings into the errors. The Obama administration, meanwhile, has urged other states to reexamine rate hikes proposed by WellPoint amid the uproar.

In California, Insurance Commissioner Steve Poizner announced that he is examining the accuracy of claims data used by Anthem to validate subsequent filings as the insurer prepares to submit new rates this month. State law requires that insurers spend at least 70% of premium revenue on medical claims.

"As Anthem readies its new rate filing, I have directed auditors at the Department of Insurance to determine whether the underlying information used by Anthem to prepare these documents is fair and accurate," Poizner said in a statement.

"This review will investigate whether there are problems with their claims-payments systems and data controls. I will not allow insurers to inflate their rates based on faulty systems or inaccurate data."

Feinstein said: "The revelation that WellPoint/Anthem used flawed data to justify its proposed premium rate hikes ... merits further investigation. I am skeptical that these errors were completely accidental."

WellPoint is the nation's largest insurer by membership, covering more than 33 million people in 14 states. Anthem is the largest for-profit health insurer in California.

WellPoint spokeswoman Kristin Binns said its rates across the country "fall within a band of what is reasonable and actuarially sound in each market."

"We believe the miscalculation was unique to the individual business rate filing in California," Binns said. "Further, we believe that our rates are in compliance with statutes and regulations in the states that we do business. We plan to continue working closely with state regulators going forward."

WellPoint has been the subject of state and federal scrutiny since news of its California rate hikes broke in February. Consumers, regulators, members of Congress and the Obama administration, including President Obama himself, have criticized its rate proposal.

The latest tumult follows the release of a report last week by a state insurance consultant who determined that Anthem had overestimated future medical costs and overstated the effect of aging of policyholders. Axene Health Partners said that correcting flaws in Anthem's rate filing would have reduced its average rate increase to about 15% from 25%.

On Tuesday, U.S. Health and Human Services Secretary Kathleen Sebelius advised states to take a closer look at WellPoint rates.

"In light of this recent finding, I urge that, to the extent you have authority to do so, you reexamine any WellPoint rate increases in your state to determine whether any mistaken assumptions similar to those made in California were made in your state," Sebelius wrote to the nation's governors. "Even small errors can mean unaffordable premiums for policyholders."

Lawmakers in Sacramento and Washington are weighing legislation that would give regulators "prior approval" authority over rates and expand the federal government's oversight of insurance.

In a statement Wednesday, Anthem said that it "is cooperating with the California Department of Insurance as it conducts a statutory financial examination of our claims payment and other financial data. We remain fully committed to working with the CDI and to providing them the information they need to conduct the examination.

"Our responsibility is to pay the many millions of claims we receive on behalf of our members each year fairly, fully, and promptly," the company added. "We welcome the department's review of our processes and look forward to receiving the results of the examination. We are committed to working with Commissioner Poizner and his staff to resolve any findings that may be identified to his satisfaction and in the best interest of our members."

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