SACRAMENTO, CA – The California Department of Managed Health Care has asked Blue Shield of California to justify a 37.5 percent increase for approximately 70,000 members who are in managed care plans.
In a letter to the insurer, state officials noted the cumulative increase is the result of two separate rate hikes – one of 15.8 percent in October 2010 and second on Jan. 1, 2011 of 18.8 percent.
"DMHC is extremely concerned about the impact of these double-digit increases on consumers within two short months and their ability to continue coverage, especially in the face of the current economic climate," DMHC officials said in the letter.
In March, Blue Shield of California backed off on plans to raise rates for nearly 200,000 members of its individual plans that come under the purview of the California Department of Insurance. Those proposed rate hikes – some as high as 59 percent – spurred a massive public outcry and pressure from Dave Jones, the state's insurance commissioner.
Paul Markovich, the insurer's COO, noted at the time that the issue was becoming an "enormous distraction." He said Blue Shield remained committed to reform and felt that "we couldn't show that simply with words. It required a bold action and this is the action we took."
The DMHC letter has asked Blue Shield to show how the rate increases for policies covered by CDI differ from those for beneficiaries under DHMC's jurisdiction and why the rate increases for plans regulated by DMHC were higher than those for CDI. It asked the company to justify, as specified in state law, how the 18.8 percent increase from January is not 'unreasonable' and that it is 'justified.'
Blue Shield was asked to respond to the request within seven days.
In a statement in response to DMHC's inquiry, Tom Epstein, vice president of legal affairs with Blue Shield of California, noted that the rate increases reflect the rising cost of healthcare in the state. Further, he stated that the "selection factor" of those who left DMHC plans had a significant impact.
"Since the membership transferring out of DMHC had lower average medical expenses than those who remained, the 2010 and 2011 rates reflect the higher per capita medical costs of those who continued to be covered by our DMHC plans," Epstein said. "DMHC rates are higher than CDI rates for these plans because DMHC plans have experienced higher medical expenses, largely due to the selection factor."
DMHC spokesperson Lynn Randolph said the request to have Blue Shield justify its rates "helps to further rein in the 'wild west' of rate increases for consumers in the individual health coverage market. We are seeking this information to ensure that we, as regulators, are able to do our job in the spirit of the new state rate review law and provide as much transparency to consumers as possible."
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