Blue Shield of California, a nonprofit insurer, on Wednesday withdrew its request to seek higher rates this year for individual policies amid stiff criticism from regulators and consumers.
Some people would have experienced rate increases as high as 87 percent if Blue Shield had gone ahead with all of its planned increases. Blue Shield’s retreat echoed moves last year by WellPoint, the large commercial insurer whose proposed premium increases were met with stiff resistance that spread across the country and even evoked denunciations from President Obama.
In making its announcement, Blue Shield emphasized its role as a nonprofit organization in seeking to provide insurance to as many people as possible. “By agreeing not to raise rates this year, we are helping to make coverage more affordable for our members during tough economic times,” said Bruce Bodaken, Blue Shield’s chairman and chief executive, in a statement.
But the reversal could also make it more difficult for other insurers in California, as well as other states, to raise premiums sharply, according to some analysts and advocates, even if companies offer evidence that justifies the increases because of the higher cost of providing medical care to their customers.
Under the one-year-old federal health care law, state regulators are required to play closer attention to what insurers are charging for policies, and some advocates say the reversal is early proof that the law will help keep premiums reasonable. “What it shows is that scrutiny matters,” said Anthony Wright, the executive director of Health Access California, a consumer advocacy group that is in favor of greater oversight of the health insurers.
Blue Shield, however, asserted that an independent review of the proposed increases supported the higher rates. Like other insurers in the state, Blue Shield says it loses money on selling individual coverage. It estimated its decision to keep premiums steady would save policy holders $35 million to $40 million this year, although some customers will still see an increase in their rates.
The company acknowledged that it abandoned its quest for higher rates after encountering such fierce opposition. “We were very frustrated by the negative attention we were getting,” said Tom Epstein, a spokesman for the insurer, which has been a vocal proponent of many of the changes required by the federal health care law. The law will succeed only if people can afford to buy coverage under the new system, he said.
Blue Shield’s decision also illustrates how the insurers are able to absorb the losses associated with selling individual coverage because they are generating profits in other markets, like selling coverage for employers. “It’s a reflection of how well Blue Shield and the industry are doing in their overall business,” said Carl McDonald, an industry analyst for Citigroup.
The question is whether state regulators reviewing the rate requests by other insurers will look beyond the economics of selling individual coverage to determine whether to approve sharp increases. In Connecticut, for example, WellPoint had sought a double-digit increase but was rebuffed by state regulators.
Still, the fact that Blue Shield initially asked for higher rates may make other increases more palatable, according to Roger Collier, an industry consultant. “If Blue Shield had simply not raised rates or requested a small increase, that would have made life difficult for everyone else,” he said.
While both state and federal regulators praised the insurer’s decision, they also signaled that they continued to favor heavy oversight of the rates insurers can charge. The federal law allows review of proposed rates, but only some states have gone further to give regulators the authority to deny any increases they view as excessive or unreasonable. California, for example, is currently weighing proposed legislation to expand regulators’ powers.
Blue Shield’s decision, which was made while California regulators were still reviewing its proposal, “is very welcome news,” said Dave Jones, the state insurance commissioner, “but it underscores the need here in California to give the insurance commissioner the authority to reject excessive rate hikes.”
While Blue Shield had agreed to his request to delay the increases, insurers can go ahead and raise rates, regardless of whether they are justified. “At the end of the day the health insurers hold all of the cards. They get to decide,” he said.
Secretary Kathleen Sebelius of the Department of Health and Human Services also emphasized the need for states to grant their regulators the power to deny rate requests, in a statement responding to Blue Shield’s announcement. “We believe that insurance commissioners should have rate approval authority and will continue to support states’ efforts to review premium increases and protect consumers,” she said.
