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On Blue Cross Rate Increases in Wake of Wellpoint-Anthem Merger
Testimony of Jerry FlanaganDepartment of Managed Health Care Public Hearing
Blue Cross of California Rate Increases
Jerry Flanagan, FTCR
On behalf of Blue Cross of California enrollees, the Foundation for Taxpayer and Consumer Rights (FTCR) calls on the Department of Managed Health Care (DMHC) to use its full authority to investigate Blue Cross rate increases following the company's merger with Anthem Inc. and to require refunds of unfair rate increases.
The legally binding agreements you signed with company executives give you the authority to act. Your duty to protect California patients demands it.
Though company executives promised that California would not pay the price of this merger, Blue Cross patients have been stuck with unprecedented rate increases of 20-30% and more as well as benefit reductions.
Undertaking 6 of the merger agreement signed by Blue Cross, WellPoint and Anthem executives states that Blue Cross of California premiums would "not increase as a result of the merger." The commitment protects consumers from all merger costs and activities, including executive bonuses of at least $265 million and an estimated $4 billion in merger related financing costs.
DMHC must conduct a thorough audit of rate increases as provided in Undertaking 6 of the merger agreement and make this information public:
"The Department may … audit or examine BCC and its books and records with respect to the foregoing certifications, to the extent deemed necessary or desirable at the discretion of the Director of the Department."
The DMHC should also scheduled additional hearings in each of the major geographic regions of the state to allow all interested parties the opportunity to provide public comment. The meetings should be scheduled in the evening or on weekends to provide a better opportunity for members of the public to attend.
Key issues of concern include:
Bill & Denise Symond of Los Angeles
After receiving annual rate increases of 2-3%, Bill and Denise Symonds of Los Angeles were shocked by a 22.8% increase at the beginning of 2005. The dramatic increase comes on an insurance plan that already requires the Symonds to pay $5000 out of pocket before coverage kicks in. "You have to have a heart transplant for the policy to pay off! Now they raise the premium too?" said Bill.
Tracy Campbell of El Dorado Hills
With a 20% rate increase this year Tracy Campbell of El Dorado Hills is questioning how she can continue to afford coverage for her self and her family. Tracy then received a second $36 increase in May. "This certainly reconfirms that there was no real reason for the first 20% unexplained rate increase. I have to try to go shopping again for different insurance," said Tracy. Being self-employed Tracy does not have the luxury of getting coverage from an employer. "We carry Blue Cross coverage only in case of extreme emergency. At this rate we almost cannot afford to keep the Blue Cross policy.... We're in real jeopardy of becoming uninsured."
Ursula Bradley of Lancaster
Ursula is a former Wellpoint/Blue Cross customer service representative who was forced to stop working when she contracted skin cancer. After being terminated from WellPoint for taking too much time off work to recover from her illness, Ursula was forced to enroll in a COBRA plan. In a matter of two months, Ursula saw the rates for her Blue Cross coverage jump from $369 to $505 to $645. A significant increase for anyone - let alone someone like Ursula living on a fixed income and caring of an elderly parent. In February of next year, her COBRA plan ends and Ursula is worried about how she will afford coverage. "I don't know how people can afford health care anymore, when my COBRA ends I will have to spend over $700 to stay with Blue Cross and I just can't afford that."
Irene Arnold of Stockton
Irene Arnold, a working mother from Stockton, was overcharged five times what she owed for her Blue Cross coverage in April. After nearly two weeks and 20 hours of phone calls to get her money back, Irene received a 17% rate increase in the mail. "As a parent trying to provide coverage for my children, big rate increases mean I can't afford other items for our children such a schooling needs, and clothing," said Irene.
Mary McNamara of Marin
It was bad enough that Mary McNamara received a large rate increase this year - but Blue Cross didn't even bother to notify her. In addition to an 11% rate increase, Blue Cross increased Mary's yearly maximum out of pocket cost from $8,000 to $10,000. "The premium is approaching the price of our mortgage. It's scandalous that health Insurance is now out of reach for so many poor and middle class California residents. But it's an astonishing statement that even the upper middle class can no longer afford health care in the state of California," wrote Mary in comments to the DMHC.
Jack McNamara of Agoura Hills
Jack and his wife received two rate increases in 2005 for a 32% increase over 2004 rates. "I think this is an outrage as my bimonthly health care premiums for my wife and myself are now at the level of my second mortgage payment, i.e. $864 a month. I believe you must investigate the extent to which the whopping interest and legal bills involved in the recent WellPoint merger are being passed on to individual Blue Cross subscribers," wrote Jack to DMHC director Cindy Ehnes.
Sylvie Gonzalez of Long Beach
Sylvia Gonzalez received a 23% rate increase from Blue Cross in 2005. "This rate increase has forced me to reduce the amount of money that I can put towards my retirement savings. If there is anything that the people of California can do to stop this legalized robbing of its' citizens, I will be willing to participate," wrote Mary in comments to the DMHC.
Sylvie Steinbach of Van Nuys
An incensed Sylvie Steinbach of Van Nuys received a 20% premium increase from Blue Cross without notification. "I was outraged by the arrogant attitude of the representatives on the phone. I stated that Blue Cross had no right to highjack my checking account with direct billing without my approval. They have created a system to discourage people from making complaint," said Sylvie.
Jerry & Dorothy Walsh, Irvine, CA -- 23% rate increase
Jerry and Dorothy's Blue Cross premium increased 23% this year, up to $799 per month, compared to $650 per month as of last March. Mr. Walsh wrote in an open letter to Insurance Commissioner Garamendi:
"When everyone talks about the crisis in the costs of medical care delivery, why does no one ever look at the annual report statements of many of these insurance providers… reports which year after year announce huge increases in profits?
"How much of our health care dollar is going to corporate profits? How many more people just got priced out of the medical insurance market?
"Maybe it's mostly corporate profits and greed which are the cause of the incredible hikes in health insurance costs. Is there any hope that the medical care delivery crisis can be solved as long as corporate profits take precedence over health issues?"
Art Letter, San Diego, CA -- 23% increase
A self-insured consultant, Art served on an independent health commission in the early 1980s that provided oversight of health care costs. The commission was eventually dissolved and its duties supposedly absorbed by the government.
Despite his expertise on health care issues, Art did not have any choice but to cut back on his health coverage when he received a 23% premium increase from Blue Cross this year.
The time is now, Art says. While some health care insurers and providers are on the level, "for the most part these people are ripping off the system in an incredibly ugly and arrogant way."
On April 1, Blue Cross of California overcharged 46,786 enrollees two, three or even five times the premiums they owed. Blue Cross has been extremely lax in notifying Blue Cross enrollees of the overcharges and resolving the problem.
The question must be asked: are the overcharges a by-product of the merger, as the recent rate increases are apparently the result of the $4 billion in finance costs and $265 million in executive pay-outs associated with the merger?
In addition to requiring immediate refunds, payments for other costs incurred by enrollees, and interest, the Foundation for Taxpayer and Consumer Rights calls on DMHC to levy a fine against Blue Cross in an amount no less than the total dollar amount inappropriately removed from enrollees' bank accounts.
1. Why are Blue Cross of California's rate increases so much higher than the industry average [9-10%]?
2. What evidence has Blue Cross provided to DMHC that merger related executive bonuses were not paid by Blue Cross rate increases? What evidence has been provided to show that premium increase revenue was not transferred to WellPoint in order to subsidize merger related expenses? Will DMHC make this documentation public?
3. What evidence has been provided that Blue Cross' "practices and methodologies" for determining rate increases have not varied from pre-merger practices and methodologies? What are Blue Cross of California's practices and methodologies" for determining rate increases? Will Blue Cross and the DMHC make this information public?
4. What evidence did Blue Cross submit to DMHC to demonstrate that merger related indebtedness incurred to finance cash requirements of the merger has not been included in post merger practices and methodologies for determining rate increases?
5. What actuarial documentation did Blue Cross provide to justify rate increases? Which DMHC actuaries review it? What was the result of that review?
6. What information did Blue Cross provide to DMHC to demonstrate that Blue Cross' administrative expense ratio has not exceeded pre-Merger levels? Will DMHC make this information public?
7. What documentation did Blue Cross provide to demonstrate that Anthem had cash on hand immediately prior to the closing of the merger that was adequate to provide for all costs relating to the merger? Will DMHC make this information public?
8. Recent announcements and actions demonstrate that WellPoint has sizeable cash assets on hand. For example, WellPoint's 107% profit increase, $185 million cash purchase of Lumenos and salary raises for top executives. What information has been provided to DMHC to demonstrate that WellPoint maintained adequate cash assets to cover these costs while paying for merger related costs? Will DMHC make this information public?
9. What documentation did Blue Cross of California provide to document that the multiple-charging of nearly 47,000 Blue Cross members in April was not the by-product of the merger, as the recent rate increases are apparently the result of the $4 billion in finance costs and $265 million in executive pay-outs associated with the merger? Will DMHC make this information public?
10. Will DMHC exercise its authority to audit Blue Cross' books? Will DMHC make this information public?
At a time when 7 million people in the state cannot afford health insurance and countless more are forced to cut back on coverage, we cannot allow the nation's largest insurer to break its promise to California.
You have the power to protect California, use it.
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