California Insurance Commissioner Dave Jones yesterday strongly condemned a recent rate hike by Blue Shield of California. The 9.8% rate hike will affect about 81,000 grandfathered individual market policies, according to Jones.
"We think these rates are excessive," Jones said. "The Department of Insurance cannot reject rate filings, but we do review them very carefully. In this case, we find them to be unreasonable and excessive."
Jones said the rate hike doesn't measure up based on a number of criteria, including overblown assumptions about growth in utilization of services, he said.
"The big thing is, Blue Shield continues to have administrative costs higher than its competitors. It's simply not reasonable," Jones said. "And [its] projected losses should not be shifted to the individual market."
Jones estimated that a 4% rate hike would be deemed reasonable by the department. He said there has been a trend of overcharging in rate hikes on this type of policy, including a 22.6% hike in rates in a single year. "Rates have risen 32.3% over last 24 months on these grandfathered policyholders," Jones said.
In a written statement, Blue Shield's vice president of corporate communications Stephen Shivinsky said the DOI numbers don't add up.
"The California Department of Insurance claim of average increases of 22.6% and 32.3% over 12 and 24 months, respectively, is not accurate," Shivinsky said in his statement.
The actual increases, according to Shivinsky, were three increases -- 7.9% in March 2012, 11.7% in March 2013 and this month's 9.8%, which add up to a total of 29.4%, he wrote.
"All income derived from these plans is subject to Blue Shield’s pledge to limit net income to 2% of revenues and return the difference to our customers and the community," he wrote. "Therefore, higher rates do not result in higher income for Blue Shield of California."
According to Jones, the recent 9.8% hike adds insult to injury, when you add in the rate hikes from the previous two years.
"What is unique about this one is the magnitude of the cumulative increase," he said, "and the 16.2% cost factor for administrative costs." That kind of inflated number, he said, "is driving these rates up unreasonably."
Shivinsky said the rates for this particular group rose for a multitude of good reasons.
"While Blue Shield shares the concerns of regulators and consumers about rising health insurance premiums, our rate increase is reasonable for the following reasons," Shivinsky wrote. "The cost of health care (physician, hospital and pharmaceutical costs) is rising more than 11% for these members; new taxes and fees add 3.6% to the premiums; our premiums are comparable to what our competitors are charging for a similar grandfathered population; and the rates meet the requirement that we spend at least 80% of premiums on medical care."
But to Jones, it's just too much to ask consumers to pay.
"These rate hikes have real consequences," Jones said. "They result in less money to pay the mortgage, less money to pay rent, less money to put food on the table for California families."