Blue Shield’s Rate Motives Explained

Could Blue Shield of California’s motivation for making an about face on its proposed May 1 rate increase have anything to do with California’s new Health Benefits Exchange, slated to launch in 2014?

Blue Shield officials say no. 

However, whether intended or not, the decision probably won’t hurt the company’s relationship with the state’s Department of Insurance. Legislation creating California’s new exchange grants the state insurance commissioner authority to recommend insurers to the exchange based on the equity of their rate increases.

Blue Shield officials said retreating from the proposed rate hikes will allow the company to more freely address issues causing medical costs to rise.

“Our primary motivation is to take the rate increases off the table so we can speak more effectively about what’s driving higher premiums — the rapidly rising cost of medical care,” said Tom Epstein, vice president, public affairs for Blue Shield. “With so much attention paid to our premiums, it was difficult to break through when we tried to explain the underlying costs.

“Also, as a not-for-profit health plan whose mission is to provide access to affordable, high-quality coverage for all Californians, we chose to take the financial risk of dropping the rate increase to help our members better manage the cost of their coverage,” he continued.

Epstein said Blue Shield has always been a strong supporter of exchange legislation when most other insurers have not. “Our rates are competitive with other insurers in the market and completely justified by the cost of medical care for our members, as an independent actuary recently confirmed,” he said.

Ioannis Kazanis, senior press secretary for Insurance Commissioner Dave Jones (D), declined to speculate about Blue Shield’s motives but did say the commissioner was scrutinizing the filing when Blue Shield changed its mind on Wednesday.

Insurance Commissioner Jones alluded to Blue Shield’s decision to withdraw the proposed increase and its support of reform as indications of the insurer’s willingness to participate in the state’s exchange. The retracted hike would have been the insurer’s third increase since October 2010.

Some Blue Shield policyholders stood a chance of facing a cumulative rate increase in premiums of as much as 87%; the third hike averaged 6.5%.

The decision by Blue Shield to not chase a rate increase for the rest of 2011 will save policyholders $35 million to $40 million this year, according to the plan. On the other hand, Blue Shield said it has lost $27 million on individual health insurance coverage since 2010 — even if the last rate increase had occurred — and expects further losses in 2011.

The California insurance commissioner does not have the authority to reject rate hikes proposed by insurers. AB 52, by Assembly member Mike Feuer (D-Los Angeles) seeks to give the commissioner more authority in that arena.




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