California insurer: Audit backs 59% rate hike

NEW YORK (CNNMoney) — Blue Shield of California said an independent review of its 2011 proposed premium hikes — as high as 59% for some policyholders — found that the rates are “reasonable [and] not excessive.”

This means that some Blue Shield policyholders could see a substantial hike in their premiums when state regulators complete their own review of the insurer’s proposal.

“The only thing that could stop Blue Shield from implementing the rate increases is if lawmakers pass emergency legislation very soon that stops it,” said Doug Heller, executive director of consumer advocacy group Consumer Watchdog.

Heller said that’s a long shot, as lawmakers first grapple with California’s budget crisis.

“Until then, insurers continue to have the power to say ‘No, we won’t reduce rates,’ and consumers have to say ‘yes, we will pay these higher rates,'” said Heller.

Blue Shield, one of California’s largest insurers, triggered a widespread backlash in early January when it announced it would hike premiums by as much as 59% for some customers.

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 increase, the third since October, would impact 194,000 individual policy holders.

Shortly after the announcement, Blue Shield hired an outside expert to review its move, promising to make refunds to its policy holders, with interest, if the new rates were found to be excessive.

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

However, under California law, the state insurance commissioner has no authority to reject excessive premium increases.

Still, Jones asked Blue Shield of California to delay the implementation of the rate by 60 days, pending a full review by state regulators. Blue Shield has originally said the hikes would take effect on March 1.

“The Obama administration continues to work with states to strengthen review of rate increases,” Jessica Santillo, spokeswoman for the Health Department said Friday.

“Americans deserve relief from out-of-control premium hikes, which is why we believe Commissioner Jones, and commissioners in every state, should have effective rate review authority,” she said.

On Friday, Jones expressed his concern about Blue Shield’s audit.

“Our preliminary review of the report on Blue Shield’s most recent rate filing indicates the insurer has failed to provide all the information we requested and this has led to serious concerns about their filing,” Jones said in a statement.

“We will continue to review it thoroughly. However, I want to stress that I do not have the authority to reject excessive rates,” he said.

Blue Shield spokesman Tom Epstein said the company stands by the independent review and that the insurer will not implement any new rate increases until state regulators complete their review.

“The commissioner’s staff has asked for additional information and we are continuing to provide data to the commissioner’s office as quickly as we can,” said Epstein.

Heller said his group has hired its own independent actuary to analyze the outside expert’s report on Blue Shield’s proposed rate increases.

“We’re concerned that this could be a whitewash of a report,” said Heller. “Our auditor’s report should be ready next week.” 

First Published: March 4, 2011: 12:59 PM ET