A California regulator for the first time has declared a health insurance rate increase "unreasonable" but acknowledged that it can do nothing to stop the state's largest for-profit insurer from going ahead with it.
As a result, rates for 120,000 customers of Anthem Blue Cross will begin rising an average of 16% on Sunday, infuriating policyholders and frustrating officials at the California Department of Managed Health Care.
The state regulator said Woodland Hills-based Anthem refused its request to match a break in insurance rates that the insurer is giving to about 600,000 other customers whose individual policies are handled by a different regulator, the California insurance commissioner.
The managed healthcare department said it was acting under a new state law that gives California regulators limited power to review insurance rates. Under the law, regulators have no authority to outright reject increases for being unreasonable.
But on Friday, the managed healthcare department, an arm of the governor's office, came under attack itself from consumer advocates for failing to win concessions, even as the department publicly scolded Anthem for going ahead with its plans.
"This is the first time that either California regulator has declared a rate increase as unreasonable under the standards set by the new rate review law," said department spokeswoman Lynne Randolph.
"In the spirit of providing maximum transparency to consumers about rate increases, we have little choice but to publicly express our disappointment that Anthem Blue Cross didn't lower the rates as we requested."
Anthem vigorously defended its decision to move forward with its rates increases. It said that separate increases reflect different kinds of insurance policies, benefits and costs for customers under the two regulators.
Anthem also said that earlier this year the managed care department — known as DMHC — appeared to support its increases. The insurer pointed out that its rate filing had been reviewed by an independent actuary hired by the state who found in February that the increases were "not unreasonable or unjustified." Shortly after, the department closed its review.
Anthem said it welcomed the actuary's findings and thought it had a green light to proceed. Anthem was surprised by the DMHC's statement Friday, said spokeswoman Kristin Binns.
"We are disappointed by this public announcement that contradicts the department's action on Anthem's rate filing for those products, and to which Anthem had no opportunity to respond," she said.
Department spokesman Randolph acknowledged that that the outside actuary had deemed Anthem's rates "not unreasonable or unjustified." But things changed, she said, after Anthem granted a break in rates to its 600,000 customers handled by the insurance commissioner's office.
A follow-up review of Anthem's filing showed that customers under the DMHC's jurisdiction will pay more for the same types of policies offered under the other regulator, Randolph said. Anthem disputed that account, saying no follow-up questions were posed about the 120,000 customers' policies.
On Friday, consumer groups criticized what they viewed as a lackluster response by the DMHC, saying officials should have fought more aggressively to reduce the effect of rate increases.
The advocates contrasted the action with that of Insurance Commissioner Dave Jones, who publicly assailed Anthem over its rate increases, insisted on changes and negotiated a plan in March to reduce average premium increases to 9.1% from 16.4%.
"It's disappointing that DMHC didn't get out in front of this earlier," said Doug Heller, executive director of the group Consumer Watchdog. The department, he said, "has to fight with as much force as Dave Jones to diminish the consumer pain as much as possible."
Heller and other advocates said the episode underscored the need for a change in state law to give state regulators authority to reject excessive rate increases. A bill granting that authority is now under consideration in the Legislature.
Anthem policyholders who said they had held out hope of rate relief saw Friday's announcement as a devastating blow. They now face higher insurance rates as well as larger deductibles and co-pays.
"It's beyond frustrating," said Anthem customer Cathy Kay of Sherman Oaks. "They basically have given Anthem Blue Cross permission to raise my rates as much as they want and as high as they want."