California insurer backs away from 59% hike

california_health_insurance.gi.top.jpgBlue Shield of California, one of the state's largest health insurer, drops plans for a premium increase for nearly 200,000 policyholders after significant backlash. By Parija Kavilanz, senior writer


NEW YORK (CNNMoney) -- Nearly 200,000 Blue Shield of California customers can breathe a sigh of relief. The health insurer announced Wednesday it will forego a new round of rate hikes that would have brought the increase for some policyholders to as much as 59% in the past year.

Blue Shield -- which had already raised premiums twice since October -- also said it will not increase rates for any individual or family plan member for the remainder of the year.

Tom Epstein, spokesman for Blue Shield, said the company had seen some backlash in recent weeks.

"It was becoming a major distraction," he said. "So we decided we would risk losing money in order to get the attention of the public back on what's really driving up health care costs, and that's rising medical costs. Health reform, we believe, will help manage those costs."

Ioannis Kazanis, a spokesman for California Insurance Commissioner Dave Jones, said regulators were "a little surprised" by the Blue Shield's decision to back away.

"We are surprised because Blue Shield had agreed to a 60-day hold and our staff was working on our review of the rate increase," he said. "But Blue Shield announced this [decision to withdraw the increase] before we completed our review."

Health and Human Services Secretary Kathleen Sebelius said in a prepared statement that Blue Shield's decision was "good news for consumers."

"The high premiums that Californians have faced highlight why we need more transparency and accountability in the health insurance market," she said.

Just two weeks ago, Blue Shield, which had hired an outside expert to review its proposed rate before it implemented it, said the auditor found the rates were "reasonable [and] not excessive."

This implied that some Blue Shield policyholders would see a substantial hike in their premiums when state regulators completed their own review of the proposed rates within a 60-day period.

Blue Shield, one of California's largest insurers, triggered a backlash in January when it announced the third premium increase in a short span.

The company raised premiums in October. Due to changes in the law, Blue Shield again boosted premium rates for some policyholders in January.

Blue Shield said higher medical costs, greater use of medical care and a growing trend of healthier people dropping coverage during a bad economy, were the reasons for seeking the increases.

The increases would have affected 194,000 individual policy holders. The company's total of 3.3 million policyholders also includes those covered by small and large group insurance plans.

Epstein said the decision to not raise members' premiums this year will cost Blue Shield $35 million to $40 million in lost revenue.

"By agreeing not to raise rates this year, we are helping to make coverage more affordable for our members during tough economic times," said Blue Shield of California CEO Bruce Bodaken, in a statement. "It's a financial risk for us, but a risk that's worth taking."

Still, the company rakes in about $1 billion in revenue from its individual insurance market plans and a total of about $10 billion annual from all of its insurance products, according to Epstein. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 16,804.71 -238.19 -1.40%
Nasdaq 4,422.09 -71.30 -1.59%
S&P 500 1,946.16 -26.13 -1.32%
Treasuries 2.40 -0.10 -4.19%
Data as of 9:03pm ET
Company Price Change % Change
Bank of America Corp... 16.82 -0.23 -1.35%
Ford Motor Co 14.59 -0.20 -1.34%
Facebook Inc 76.55 -2.49 -3.15%
Apple Inc 99.18 -1.57 -1.56%
Cisco Systems Inc 25.03 -0.18 -0.72%
Data as of 4:03pm ET

Sections

In the last five years, pumpkin sales have risen 34% as people demand pumpkin in everything from beer to beef jerky. More

Facebook's chief product officer issued an apology to Sister Roma and the drag community on Wednesday for its flawed 'real name' policy. More

New York City launches a comprehensive site for all things related to its digital tech scene, Digital.NYC. More

For these seniors, the best retirement is not to retire. From a 102-year-old Wal-Mart worker to an activist park ranger, these workers have stayed on the job well into their golden years. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.