California insurer backs away from 39% hike

NEW YORK (CNNMoney.com) -- Anthem Blue Cross has withdrawn its request to increase premiums by as much as 39% for its California customers, citing provisions in the new health care reform law.

Under the Patient Protection and Affordable Care law, commercial insurers must maintain an 80% "medical loss ratio" for individual insurance policies beginning January 2011.

That means insurance companies must allocate 80 cents out of every premium dollar to providing health care to their customers, while the remaining 20 cents can be used to pay other expenses, including salaries, overhead, and profits.

In a statement released Thursday, Anthem, a unit of WellPoint Inc (WLP, Fortune 500)., said the decision to withdraw its rate request was taken "to meet our current understanding of this requirement in advance of the effective date."

Anthem said it plans to refile rate increases sometime in May.

The insurer said it will provide "adequate notice" to members regarding how their rates may be impacted by the refiling. In the meantime, rates for Anthem's individual members in California remain unchanged.

Kathleen Sebelius, secretary of the U.S. Health and Human Services Department, said the announcement was "good news" for Californians who could have been hit with "massive rate increases."

"Since these rate hikes were first announced, I have heard from countless Americans who have been stretched to the limit by high health insurance premiums," Sebelius said in a statement. Anthem's decision, she said, will provide "some much-needed temporary relief."

"As we implement the law, [we] will closely monitor the industry, and we will not hesitate to act to prevent exorbitant premium hikes," she said.

Anthem became a symbol in the acrimonious debate over health care reform when it announced the plan earlier this year to raise rates by as much as 39% for its 800,000 customers in California.

Critics say Anthem and other insurance companies want to raise rates to help boost profits. But the insurance industry argues that rate hikes are necessary to cope with lost revenue as more of their customers either dropped insurance or downgraded to cheaper plans during the recession.

Brian Sassi, chief executive of WellPoint's consumer business unit, said Anthem's decision to withdraw its rate request was in "the best interests of our customers."

"Our goal is to make health care reform work for our members," he said.

President Obama signed the Patient Protection and Affordable Care Act into law in March. The law, which goes into effect over the next four years, aims to provide health care for 95% of Americans.