California insurer bows to 59% rate hike backlash

By Parija Kavilanz, senior writer


NEW YORK (CNNMoney) -- A week after announcing that it would hike premiums by as much as 59% Blue Shield of California has hired an outside expert to review its move, promising to make refunds to its policy holders, with interest, if the new rates are found to be excessive.

Blue Shield, one of California's largest insurers, triggered widespread backlash last week when it said the jacked up rates would take effect on March 1, pending review from state insurance regulators.

The company blamed higher medical costs, greater use of medical care and "the fact that healthier people are dropping coverage during a bad economy" for its decision to hike rates.

The move would impact 194,000 individual policy holders.

"We regret that our members have received significant rate increases in recent months and want to be absolutely certain that the rates reflect our actual cost of providing medical care," Blue Shield CEO Bruce Bodaken, said in a statement.

"If this independent review finds that the rates are not sound, we will hold our members harmless by refunding the difference with interest," said.

Regulators, including California state insurance commissioner Dave Jones and Health and Human Services Secretary Kathleen Sebelius, denounced the decision.

"I find it stunning that Blue Shield would seek to impose such massive premium increases on policyholders during these troubling economic times," Jones said last week.

Following last week's announcement, Jones asked Blue Shield of California to delay the hike until he has had the opportunity to thoroughly review the case.

On Friday, Jones' office released a statement expressing disappointment that Blue Shield announced it hired the independent auditor before informing his office of the decision.

"We are surprised and disappointed that the message from Blue Shield came out before the conversation with the Commissioner," the statement said. "They said it was a mistake and apologized."

Blue Shield subsequently recalled the release, and issued a "corrected" version, which was identical to its earlier announcement.

The California commissioner's office said that it "continues to believe that a sixty-day delay is an appropriate action given the fact that he had only been in office for less than 72 hours when he found out about the full impact of the rates."

Bad PR: To quell some of the backlash, Blue Shield has hired David Axene, president of Axene Health Partners, to conduct an independent review of the proposed new rates.

"Blue Shield's [latest] rate increase has gotten a lot of attention," Axene told CNNMoney on Friday, adding that he has not yet begun his work for Blue Shield. Blue Cross said Axene is expected to complete his audit in 30 to 45 days.

"It's become a high visibility move. I do give them kudos for bringing in an independent auditor so that everyone can see if this increase is valid or a mistake."

Axene has conducted independent reviews of other insurers' rate filings for the California Department of Insurance, including Anthem Blue Cross' attempted 39% premium hike in the state last year.

During that review his office found errors in Anthem's rate hike filing. After they were corrected, Anthem subsequently implemented a much lower rate increase.

Axene said Blue Shield will voluntarily abide by his report. "Our assessment could be that the rate increase is reasonable. But if we say that your rate increase is too high, they will lower it," he said.

Blue Shield said if rates are "unsound," the company would refund affected policyholders.

"Our report will be a transparent report," Axene said. "Not only will we offer our assessment, but we will also tell people why we have made that decision."

Despite the the news of the independent review Jones said he was "disappointed that Blue Shield has not agreed to my reasonable request that they delay the implementation of their March 1, 2011 rate increase."  To top of page

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