Calif. Regulators Approve Anthem Blue Cross Rate Hike of 14% to 20%

California insurance regulators have cleared the way for Anthem Blue Cross to move ahead with scaled-back rate hikes after a previous increase was canceled.

The new rates will average 14% to as high as 20%. Anthem said it plans to put the new rates into effect Oct. 1 for nearly 600,000 of its 800,000 individual California policyholders.

Regulators also allowed another California-based plan, Blue Shield of California, to implement rate increases, which will average 19% to 29%, for 250,000 individual policyholders.

Earlier this year, Anthem Blue Cross withdrew its request to raise premiums by up to 39% on members of its individual health plans after the California Department of Insurance found "substantial errors" in its rate filing (BestWire, April 30, 2010). When Anthem filed, Insurance Commissioner Steve Poizner sent the company's rate filing to an outside actuary for review.

An independent analysis found errors in the methodology Anthem used to project total lifetime loss ratios, the insurance department said. Correcting the errors resulted in lower lifetime loss ratios than Anthem first calculated.

On June 30, Anthem Blue Cross resubmitted its March rate filings for individual health insurance to the California insurance department and Department of Managed Health Care (BestWire, July 2, 2010). The company had corrected "inadvertent errors" noted in the report of an independent third-party actuary, Axene Health Partners, which the insurance department had hired to examine the insurer's original filing.

California's insurance department now requires requests for premium rate increases by top health insurers in the individual market to undergo an additional review by outside actuaries (BestWire, June 16, 2010). Those insurers, Anthem Blue Cross, Aetna (65,000 individual members) and Health Net and Blue Shield of California (240,000 individual members), cover about 90% of the market. California does not require prior approval of health insurance rates, but state law requires that 70% of premiums is spent on medical care benefits. Axene had found in its study that Anthem had exceeded the 70% requirement in its original filing in each of its individual product lines.

In June, the insurance department said another major health insurer, Aetna, also withdrew its rate filing, which would have raised premiums by an average of 19% on 65,000 policyholders in its individual health insurance plans, after "substantial mathematical errors" were found during an additional actuarial review (BestWire, June 25, 2010).

Anthem spokeswoman Kristin Binns said the company is "pleased that the department has posed no objections to our individual rate filings, and we look forward to continuing to serve consumers in California."

She said Anthem plans to notify policyholders of the rate increase in the upcoming days. After the company submits 2011 rates to the insurance department later this year, the department has 30 days to review the rates. If no objections are raised, Anthem can move forward to implement rate adjustments, following a 30-day notice to members.

Anthem's parent, WellPoint Inc. (NYSE: WLP), operates Blue Cross Blue Shield plans in 14 states. Anthem Blue Cross is the trade name of Blue Cross of California.

In July, Anthem Blue Cross of California named Pam Kehaly, a former executive at Aetna, as its new president and general manager after Leslie Margolin left the company. Kehaly, who most recently served as president of national accounts at Aetna, will join Anthem on Aug. 30.

Anthem BC Life and Health Insurance Co. currently has a Best's Financial Strength Rating of A (Excellent).

On the afternoon of Aug. 26, WellPoint's stock was trading at $50.88, down .31% from the previous close.

(By Lori Chordas, senior associate editor, Best's Review: Lori.Chordas@ambest.com)