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Saturday, March 12, 2011

Life imitates theory

As if to underscore yesterday's Krugman column is today's Los Angeles Times story. Read and weep!

latimes.com

Blue Shield's cumulative rate hikes could reach 86.5%

If its third planned premium increase in recent months is allowed to take effect May 1, Blue Shield says, 45,500 customers will face hikes of 50% or more, and 900 will see their bills rise 80% or more.

By Duke Helfand, Los Angeles Times

March 12, 2011

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Higher insurance premiums sought by Blue Shield of California in recent months would drive total increases as high as 86.5% for thousands of individual policyholders, new documents show.

The higher cumulative increases, once thought to be as much as 59%, were reported to Insurance Commissioner Dave Jones this week as part of Blue Shield's explanation of its plans to raise rates in May.

Blue Shield already increased rates in October and January. If its third planned increase is allowed to take effect May 1, as expected, the San Francisco nonprofit said, 45,500 customers out of 193,800 will face cumulative hikes of 50% or more. Nine hundred will see their bills rise 80% or more.

"There's no question that rate increases of this magnitude will have a significant negative financial impact" on policyholders, said Jones, who renewed his call for a state law to give the insurance commissioner authority to deny excessive rate hikes.

Palm Springs Realtor Neil Arrigale is among those hit with some of the largest increases: His monthly premium was set to rise 83% cumulatively — to $454 from $248 — but he switched to a less expensive Blue Shield plan with lower benefits.

"There's no way around it," said Arrigale, 55. "What are you going to do?"

Blue Shield said the three rate increases reflect the soaring costs of medical care and the greater use of expensive healthcare services by policyholders, along with new state and federal mandates.

In explaining the need for the increases, company spokesman Tom Epstein also said that Blue Shield had underpriced some of its individual health plans, leaving the company without enough revenue to cover the cost of medical care for members. As a result, the insurer has had to raise premiums substantially on its money-losing products.

"Projecting losses is an inexact science," Epstein said. "If you get it wrong, you have to fix it. Each product needs to have a balance of revenue and medical expenses for it to be viable."

Blue Shield imposed the first of its three rate increases Oct. 1. The hike — averaging 19% and reaching as high as 29% — had been delayed three months while an independent actuary, hired by then-Insurance Commissioner Steve Poizner, examined Blue Shield's files. The consultant found no errors and cleared the company to proceed.

Then on Jan. 1, Blue Shield adjusted its rates again, this time to reflect mandates in the national healthcare overhaul and new state guidelines that barred health plans from charging men and women different rates. That change raised rates for some members but lowered costs for others.

The third increase — averaging 6.5% and going as high as 18% — was set to take effect March 1 but was put on hold for two months at Jones' request so that Insurance Department actuaries could weigh in. That review is expected to be completed by the end of March.

In the meantime, Blue Shield hired the same outside actuary Poizner had tapped previously to review the third hike. Once again, the consultant found no errors and concluded that the rate increase was reasonable.

Blue Shield notified customers before each of its three rate hikes. But it drew outrage when its notices for March 1 calculated cumulative increase figures of as much as 59%.

Those figures didn't include the first rate hike in October. The company said it was required by law to report only the January and March cumulative figure in its notices to customers.

Blue Shield's report to Jones this week showed that the cumulative effect of all three increases was as much as 86.5%.

John Lewis was among those who were mystified. The letter announcing his March increase said his rate would rise 56.6%. He was unhappy with the change but even angrier when he realized that his bill would jump 73.5% after adding in the October increase.

"I tried to call them," the 46-year-old Santa Barbara resident said of the company, hoping to switch to a less expensive plan. "Nobody picked up."

Blue Shield said that just four policyholders face the biggest increase. Company figures show that the average over last year and this year will be 30%, with 88,300 customers below that level, including 2,200 who will see no change and 1,100 whose rates will drop as much as 2.8%.

Epstein said that Blue Shield would readily switch customers with large increases to less expensive plans if they requested a change.

Despite the higher rates, he said, Blue Shield still expects to lose $20 million to $30 million on its individual policies this year, on top of $27 million in losses last year.

He said that Blue Shield has long advocated reforms in the individual insurance market to make it more stable and avoid large increases.

"People are justifiably concerned when they get a significant rate increase. We wish that we didn't have to do that," Epstein said. "When people are getting increases like that and we're still losing money, something is seriously wrong."

duke.helfand@latimes.com

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