Link between merger, premium hike probed

BlueCross of California says increases are not connected to the Anthem-WellPoint deal.

By — Posted May 9, 2005

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The insurance commissioner of California is investigating whether the 2004 merger between Anthem Inc. and WellPoint Health Plans spurred an unusually high increase in the premiums of certain BlueCross of California subscribers, an accusation the plans say is untrue.

Insurance Commissioner John Garamendi in April said that he was looking into allegations by a consumer watchdog group that many individual health insurance policyholders whose policies had been renewed this spring saw price hikes of 20% to 50%. BlueCross, a member company of WellPoint, said the reports of the increases were highly exaggerated.

"We are investigating to test the validity of [BlueCross's rate filings]," Garamendi said in a statement, adding, "It was very clear that no part of any premium can be used to pay for merger costs."

Garamendi reluctantly agreed to approve the $16.5 billion merger, which created Indianapolis-based WellPoint Inc., in the fall of 2004. As a prerequisite for his permission, the merger partners assured him that California policyholders wouldn't have to pay additional premiums that could be attributed to merger-related expenses.

The Foundation for Taxpayer and Consumer Rights, a California-based advocacy group that strongly opposed the merger, wrote a letter to Garamendi and California Gov. Arnold Schwarzenegger saying that numerous individual policyholders of the California Blues plan had reported rate increases significantly higher than the increases seen last year.

"The facts strongly suggest patients ... are being charged for the merger," Jerry Flanagan, the foundation's consumer advocate, said. He added that for the industry as a whole, premium increases have been about 9% to 10% this year, while some BlueCross members were seeing 20% increases or higher in his state, and in one case -- a family described as "formerly of the Bay Area" -- 50%.

Michael Chee, a BlueCross of California spokesman disputed that. He said the plan is unaware of any increase of 50% and doesn't believe it happened. He said that the highest premium increase that the company has on record for March 1 renewals was 23%. The average increase was 13%, and more than half of individual policy subscribers had increases of 15% or less, he said.

Chee said the increases were simply a "reflection of costs," in particular physician and hospital fees, new technology and pharmaceuticals, and increased utilization of health care services by members.

"This categorically has nothing to do with merger-related costs," he said.

In Flanagan's letter to Garamendi, he said it was the commissioner's responsibility to see if refunds of premium money were warranted in case the Dept. of Insurance found a connection between higher premiums in California and the merger.

He also pointed out raises that were received by WellPoint President and CEO Larry Glasscock and another top WellPoint executive this year of 15% to 20%. Large bonuses for WellPoint executives, which were part of the terms of the merger, were a primary reason Garamendi opposed the deal before eventually relenting. Anthem appeased Garamendi last year by pledging at least $265 million to California health care programs.

The merger transformed the two insurance companies into the nation's leading managed care plan, with a membership of about 26 million.

Peter Warren, spokesman for the California Medical Assn., said CMA supported a thorough investigation into the causes of any premium rises.

"Commissioner Garamendi has been doing a good job," he said. "He promised to carefully examine any rate increase, and we always expected him to follow through on that. We're watching what he does. Unwarranted increases are destructive to the health care system."

Garamendi cannot undo the merger but has legal authority to force Blue Cross of California to reduce its premium increases if he believes they are related to the Anthem-WellPoint deal.

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