Commissioner Dave Jones Sides With Consumers, Echoes Concerns Raised by Consumer Watchdog in Lawsuit Over the So-Called “Death Spiral”

Santa Monica, CA – Consumer Watchdog praised Insurance Commissioner Dave Jones’ announcement today opposing Blue Shield’s plan to close 23 health insurance policies, and echoing concerns raised by Consumer Watchdog in a recently-filed class action lawsuit.

Consumer Watchdog said, however, that as many as 100,000 Californians are still trapped in closed or lower-benefit health plans following policy closures carried out by Blue Shield’s affiliate regulated by the Department of Managed Health Care in 2010.

“Blue Shield is on notice that the company’s plan to close health insurance policies fails to protect consumers as the law requires,” said Jerry Flanagan, staff attorney for Consumer Watchdog. “If Blue Shield decides to go forward with the policy closures, we look forward to working with the company to implement a consumer-friendly plan. We also hope that Blue Shield will ensure that consumers affected by the 2010 policy closures will finally benefit from the protections mandated by law.”

The lawsuit filed by Consumer Watchdog and Whatley Kallas, LLC alleges that Blue Shield is illegally gaming the health insurance system by alternately closing older policies and opening new ones in order to push older, sicker consumers who are more expensive to insure into lower benefit, higher deductible coverage that requires consumers to pay more out of pocket.

The lawsuit seeks to stop Blue Shield from shoving its policyholders into what is known as a “Death Spiral”-the industry term for what happens when a health insurer “closes” certain insurance policies to new customers, and later raises rates to those remaining in the closed policy until those enrollees can no longer afford coverage. Since consumers with preexisting conditions cannot switch to a comparable or better policy, consumers trapped in the closed policies must either accept greatly inferior coverage or face bigger and bigger premium increases.

Download the lawsuit filed in San Francisco Superior Court here

According to legislative records, it was Blue Shield’s own past business practices, resulting in Death Spirals for consumers, that spurred the Legislature to adopt the same 1993 law that Consumer Watchdog and Whatley Kallas, LLC now allege the company has violated.

The policy closures are taking place among certain insurance plans in the individual market. California law requires that when health insurers close a policy the insurer must either offer consumers new comparable coverage, or minimize rate increases on the closed policies.

Two regulatory agencies – the California Department of Managed Health Care (“DMHC”) and the California Department of Insurance (“CDI”) – oversee different segments of Blue Shield’s insurance business. In the lawsuit, Blue Shield is accused of illegally closing eight policies regulated by the DMHC in 2010, and announcing it would close 23 policies regulated by the CDI on July 2, 2012 without offering consumers comparable policies or limiting rate increases as required by law.

Consumer Watchdog and Whatley Kallas, LLC settled a similar class action lawsuit last year targeting Blue Cross of California’s illegal Death Spiral practices. Read more about that lawsuit and settlement here. Under the terms of that settlement, Blue Cross must both offer consumers in the closed policies access to comparable coverage and limit rate increases in the closed policies if consumers choose to remain enrolled in the older, closed policy.

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Consumer Watchdog is a nonpartisan consumer advocacy organization with offices in Washington, D.C. and Santa Monica, CA. Find us on the web at: http://www.ConsumerWatchdog.org

WhatleyKallas has earned a national reputation-based on trust, respect, demonstrated commitment and tangible results-in connection with its representation of healthcare providers and members of the organized medicine community. The firm’s lawyers have negotiated settlements with most of the major health insurers in the country on behalf of hundreds of thousands of consumers, physicians and medical associations that resulted in monetary relief and revolutionary practice changes valued in the billions of dollars. These settlements fundamentally changed the way managed care companies do business. The lawyers of WhatleyKallas have been repeatedly recognized in legal publications, such as “The National Law Journal” and “American Lawyer”, by their peers and by leaders of organized medicine for our work in the healthcare field. For more information, go to: http://www.whatleykallas.com/

It is a masterful spin by the self-described not-for-profit Blue Shield of California to announce that it is returning all but two percent of its profits to its customers, as though this were some act of humble generosity.  It’s a little like a supermarket announcing that from now on it’s going to give back (almost) all of your change.  (It’s actually worse than that, as I’ll explain.)

It is a masterful spin by the self-described not-for-profit Blue Shield of California to announce that it is returning all but two percent of its profits to its customers, as though this were some act of humble generosity.  It’s a little like a supermarket announcing that from now on it’s going to give back (almost) all of your change.  (It’s actually worse than that, as I’ll explain.)

All told, Blue Shield will have returned about $475 million in profits – $283 million that Blue Shield is crediting back in December plus about $167 million credited back earlier in the year for 2010 premiums as well as the $25 million the company distributed to doctors, hospitals and an as yet unnamed “community investment.”  But this should not be thought of as a sincere gift from a community-oriented nonprofit.  Rather, it’s nearly half a billion dollars that Blue Shield overcharged its policyholders and then held onto for months.  

Worse still, Blue Shield had to be pushed and prodded to do anything; this refund didn't just happen.  Blue Shield is only giving some money back because there was huge public pressure this year – from California Insurance Commissioner Dave Jones, from nurses and consumers who protested at their corporate offices, from lawmakers like Assemblyman Mike Feuer carrying legislation to regulate insurance companies and from news reporters investigating their rates and salaries.  

What’s more, the $283 million that will go to reducing policyholders’ December premium payments is utter chump change when given a full context:

Blue Shield, according to documents it files with the state of California, has more than $3 billion in excess surplus (“Tangible Net Equity excess” is the formal term).  That massive and ever growing pot of money is a profit account that Blue Shield uses to take policyholder premium out of the healthcare system so they can come back and charge those same policyholders high rates again next year.  Blue Shield could give back $280 million a month for an entire year and still have a enough money on hand to run a stable insurance company.  Or, to think of it a little differently, instead of giving families back a few hundred dollars for Christmas, they could just sell insurance at a reasonable premium and not stuff their own stockings with surplus.

To be sure, Blue Shield is angling for a feel good story it can tell politicians and voters when they next consider whether to enact a law or initiative regulating the premiums health insurance companies can charge.  That story may work with some politicians in Sacramento, but I doubt voters who are stuck overpaying for health insurance will be so easily spun.

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Doug Heller is the Executive Director of Consumer Watchdog. Visit our website at: www.ConsumerWatchdog.org.

by California Labor Federation Policy Coordinator Sara Flocks

I have a friend, Patty, who worked as a waitress to pay her way through college. She worked hard and studied hard, so when she got sick and couldn’t get better, she just chalked it up to stress. For two years, Patty was chronically ill with mysterious and debilitating symptoms. She knew she should go to the doctor, but she didn’t have health insurance through work, and she couldn’t afford to buy insurance and pay for rent and tuition at the same time. So she never went to the doctor. Eventually, Patty ended up in the hospital, where she was diagnosed with a thyroid problem. Since she had not gotten care for so long she had to immediately have surgery, which left her with $10,000 in medical debt.

Patty is just one of the 8.4 million Californians who lack health insurance. Californians who don’t have job-based insurance are left to purchase coverage on their own in the individual market—a maze of complicated and overwhelming options hawked by giant health insurance corporations that know how to make a profit. The high cost of health coverage drives many people like Patty into the ranks of the uninsured, because they just can’t afford to buy insurance and pay rent at the same time.

Patty didn’t have health insurance. But even if she did, the rate increases proposed by Blue Shield would have priced her right out of the market. A recent report states that Blue Shield is proposing insurance premium increases as high as 86.5 percent for some policy holders and 45,500 customers will see increases over 50 percent. The total includes three rate increases in the last six months, from October, January and now another one pending in May.

Policy holders were already understandably upset over Blue Shield’s proposed 59 percent increases —so why did that figure jump to 86.5 percent? Turns out, when Blue Shield originally said 59 percent, they neglected to include the October increase in the totals—they only included the two from 2011. Oops, sorry!

Frustrated policy holders have had an ongoing battle with Blue Shield, and now the Department of Insurance has entered the fray. After Blue Shield filed for a rate increase, Insurance Commissioner Dave Jones asked the insurance giant to postpone the planned March 1st increase so the Department could review the rate filing. First Blue Shield refused outright. Then they complied with the request, but thumbed their nose at the Department and released their own study of the rate increase request. To no one’s surprise, Blue Shield found that their rate increase was “reasonable, not excessive.”

Reasonable? Really? Reasonable for whom? I’m sure Blue Shield thinks its ‘reasonable’ to jack up prices during a recession when millions of Californians have lost their jobs, their homes and their savings. But I doubt that the 200,000 Blue Shield policy holders find the increase ‘reasonable.’ I doubt the people who will no longer be able to afford health care and can’t take their kids to the doctor find it ‘reasonable.’ And I highly doubt that the millions of uninsured like Patty find it ‘reasonable’ that even when they work hard at their jobs every day, they will never be able to afford to buy health insurance.

Blue Shield and the other insurance giants who have recently increased health insurance premiums argue that they have to raise prices to cover their costs. They cite soaring medical costs and state and federal mandates, including the federal health reform, as forcing them to raise prices. Yes, medical costs are soaring. But Blue Shield is not exactly a helpless victim in all of this. Insurers play a pivotal role in driving reforms that will reign in costs and make health care more affordable and accessible. They could actually reign in those costs themselves, if they were driven by more than just their own bottom line.

We can no longer afford to pay the skyrocketing price for health insurance. We can no longer afford to have 8.4 million of our fellow Californians go without doctor visits, check-ups, vaccines and basic care because they can’t afford it.

The new federal health care reform law is a step in the right direction, but there is more than needs to be done in order to rein in outrageous premium increases that are forcing more and more Californians into the ranks of the uninsured.

The first step should be to give state health insurance regulators the power to actually regulate the rates health insurers charge. Right now, when Blue Shield files for a rate increase, regulators can make sure that their numbers check out and meet some minimal standards, but they cannot actually stop an insurer from raising rates. Assemblymember Feuer is moving a bill to change that. AB 52 (Feuer) would give the Insurance Commissioner the power to approve rate increases before they go into effect—and to make sure increases are actually reasonable— for people, not just profits. 

Learn more about AB 52.

After Blue Shield shocked the nation with 59% premium hikes in California last week, the company just refused a request from the elected insurance commissioner to stop the increases for 60 days. 

After Blue Shield shocked the nation with 59% premium hikes in California last week, the company just refused a request from the elected insurance commissioner to stop the increases for 60 days.

Blue Shield is making the case for tough premium regulation, because is has proven that it has the power to raise rates as much as it wants at will and refuse even a modest request from the elected insurance commissioner.

After spending the day walking the halls at the state Capitol in Sacramento yesterday, I can tell you Blue Shield made a big mistake when it decided to price gouge its customers. The state legislature is ready for a fight to give the insurance commissioner power to approve or to deny health insurance premium increases before they take effect. (You can help give them the push they need by sending an email to your state representatives today.) If that fight fails, Consumer Watchdog will help the voters decide through a ballot measure whether government should have the power to regulate and roll back excessive premiums.

Blue Shield made an offer in an errant press release it later recalled which no regulator or policyholder can accept. The company said it would let an independent actuary decide rate justification, and decided to live by the policy when news broke.  The problem is that in the absence of legislated standards for what is an excessive premium, an independent actuary has no basis for review of the premium's reasonableness other than whether there is an error in addition, multiplication or subtraction.

Questions abound about how Blue Shield can justify its 59% premium hike other than by the means it seeks — an actuary to say all the math is good. The standard Californians deserve is that the rates are not excessive or discriminatory. That's the standard for the prior approval of auto and homeowner insurance rates in California that are rejected or accepted by our elected insurance commissioner. The standard saved drivers $62 billion on their auto insurance according to the Consumer Federation of America.

Blue Shield is more opaque than any health insurance company in California because of its unique tax status. We don't know how much the CEO makes, nor can we adequately see the company's the books since it is neither publicly traded nor a tax exempt charity that must make its tax returns public.  Suspicion is Blue Shield cooked its books, and hid big sums of money, to justify the 59% increase.

Only subpoenas and special investigative hearings will determine the truth in the absence of new authority given to the elected insurance commissioner Dave Jones. Legislation by Assembly Member Feuer will give the commissioner that power and it is precisely what Blue Shield's second PR problem in two weeks sought to derail.  Once again, Blue Shield has made the case for exactly the tough regulation it seeks to stop.

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Posted by Jamie Court, author of The Progressive’s Guide to Raising Hell and President of Consumer Watchdog, a nonpartisan, nonprofit organization dedicated to providing an effective voice for taxpayers and consumers in an era when special interests dominate public discourse, government and politics. Visit us on Facebook and Twitter.

One of the worst elements of the current budget crisis is that it crowds out all of the other urgent problems facing the state.  Nowhere is this more true than in health care.  When the Nunez/Schwarzenegger overhaul failed last year, the problem never went away.  And there are a host of other issues with health care delivery that linger.  Fortunately, we’re seeing a little progress and a few good ideas that can set a course for the future.

First, the state reached an agreement with Blue Cross to reinstate 678 patients who were wrongly removed from their insurance plan in a practice known as “rescission”.  Basically, the insurer waits until a patient files a claim and then invents a reason to cancel their policy.

The insurer has agreed to reimburse the subscribers for any out-of-pocket medical expenses and create a third-party process to review policy cancellations.

Blue Shield faces up to a $5 million fine if it does not take corrective action, said Darrel Ng, insurance department spokesman.

Between Jan. 1, 2004, and May 31, 2008, Blue Shield improperly dropped 678 subscribers, the agency said.

Obviously, the state meeting its responsibilities to protect California consumers is helpful, but it doesn’t solve the big problems of health care delivery.  One of the most pressing concerns how to get quality care out to rural areas, where there is a dearth of doctors and facilities.  Fortunately, John Garamendi has a plan to recruit new doctors to rural health centers.

State Lt. Governor John Garamendi is proposing an ambitious fast-track medical school at University of California-Merced in an effort to create more doctors for the San Joaquin Valley, one of the most physician-poor regions in the state […]

Entering freshmen – recruited from San Joaquin Valley high schools, with family ties to the region – would study at UC-Merced and local community colleges, then train in existing medical centers and clinics, instead of at a pricey research-oriented hospital.

They would be encouraged to train as primary care physicians and learn the challenges of practicing medicine in this vast region, where 130 languages are spoken and many residents suffer from chronic ailments such as diabetes, heart disease and respiratory ailments from dust, diesel-burning farm equipment and wood-burning stoves.

And then there are the macro issues with rising costs and the uninsured in general.  Recognizing the dire needs in this area, foundations and nonprofits are stepping up in this area with advocacy that will hopefully bring more attention to the issue.

Overall, while the budget is obviously the pressing concern, we cannot overlook these burgeoning crises throughout California public policy.  There is sadly no magic fix for them, even if a budget is someday signed.

Health care reform in California is in stall mode right now, and with each passing day the price tag for gathering signatures rises.  But between the twin fundraising efforts of the Speaker and the Governor, as long as they cancel travel for a month they should be fine.

What’s working against the proponents of health care reform, in my view, is the continuing tragedy of Nataline Sarkysian.  By November 2008 this will be out of the headlines, but within weeks the State Senate will be debating the merits of a reform measure that keeps the insurance companies in business to do this:

A Friday funeral was set for the Northridge teenager who died last week after her insurer refused to pay for a liver transplant and then reconsidered. Meanwhile, the girl’s health plan stood by its initial decision Monday.

Philadelphia-based Cigna HealthCare has a record of approving coverage for more than 90% of all transplants requested by its members, as well as more than 90% of the liver transplants, company President David Cordani said in a memo addressed to employees and distributed to members of the media.

This is definitely a time to be citing statistics.

CIGNA clearly makes decisions based on corporate profit and lawsuit threats.  They decide what treatments are “experimental” based on flowcharts and spreadsheets, not by looking into their customer’s eyes.  And their complete lack of empathy proves that they’re willing to let this continue.

Just the other day, a state appeals court ruled that insurers cannot play the game of canceling coverage because of faulty applications only when the patient actually needs to use their health care.

California health insurers have a duty to check the accuracy of applications for coverage before issuing policies — and should not wait until patients run up big medical bills, a state appeals court ruled Monday.

The court also said insurers could not cancel a medical policy unless they showed that the policyholder willfully misrepresented his health or that the company had investigated the application before it issued coverage […]

The decision came in a closely watched case involving Steve Hailey, an Orange County small-business owner whose coverage was canceled by Blue Shield of California after he had a disabling car accident. The ruling in favor of Hailey sends the case back to the lower court for trial and requires Blue Shield to pay Hailey’s appellate costs.

The types of tricks of the trade employed by CIGNA and Blue Shield are a nationwide trend.  Legislation and lawsuits have yet to stop them.  They’ll claim that they can’t do business without this kind of chicanery.  At some point, government must grant their request.

Let me clear out my Inbox and set you on your weekend way:

• The Megan’s Law website apparently is being used as a hit list and may have led to at least one death.  This is the downside of a “what about the children?” über alles mentality.

• I’m not entirely certain about this claim that state lawmakers could have solved the mortgage crisis back in 2001 by cracking down on predatory lending practices.  It’s a boilerplate story, a typical “they bought off the politicians” frame.  But the problem, as Paul Krugman notes today, is that home prices lowered, leading to negative equity for homeowners.  Not sure what the lawmakers could have done about that.  This is a national crisis that required federal action.  And what action could be taken on the state level is in the purview of the Attorney General.  Jerry Brown is investigating home loans from Countrywide Financial for improprieties, particularly forcing buyers with good credit into subprime mortgages.

• For all the talk about Steve Poizner, he is doing his job in suing Blue Shield for their loathsome practice of dropping patients retroactively after they seek coverage.  Blue Shield’s response?

The state’s interpretation of laws governing policy cancellations “is simply wrong.”

Stupid state, not knowing their own laws as well as a private entity!

• Nancy Pelosi is under fire for saying that Republicans like this war.  Juan Cole is right to slam her for assuming that Republicans would act in good faith and help to end the war after the 2006 elections.  What Republican Party was she talking about?

• Anthony Wright has the new amendments released to the public on the new health care reform.  I should have a lot more on this over the weekend.

• I know that I didn’t execute a House roundup in November, but honestly there wasn’t a whole lot going on in the races.  So I postponed it and will have a December roundup in the next few days.

• And finally, I would be remiss if I didn’t mention the California Democratic Party buying three grand in French wine from Fabian Nuñez, who’s now a wine salesman, I guess.  I have to acknowledge Kevin Spillane (two Republicans in one day, I know) from the No on 93 campaign for the funny move of sending a bottle of Two Buck Chuck to Nuñez’ office.  It is an award winner.

It’s an open thread.

 

 

 

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A.   In the past five years, have you or any applying family member been an inpatient or outpatient in a hospital, surgical center, sanitarium, or other medical facility, including an emergency room, or had surgery, including angioplasty, cosmetic/reconstructive, bypass or transplant surgery?      20. B.   In the past five years, have you or any applying family member had any illness, physical injury, persisting or new physical symptoms and/or health problems not mentioned elsewhere on this application that have not been evaluated or that you plan to have evaluated by a licensed health practitioner?      20. C.   In the past five years, have you or any applying family member been advised to have, or been referred for, a medical exam, further testing, treatment or surgery which has not yet been performed by a physician, dentist, or other licensed health practitioner?      20. D.   In the past five years, have you or any applying family member had any application for health or life insurance revoked, declined, deferred, postponed, or restricted in any way?      21.     Are you or any applying family member presently a member of a support group?      22.     Males only:  Are you expecting a child with anyone, even if the birth mother is not listed on the application?      23.   Males and females: Is either the applicant, spouse, domestic partner or dependent, whether or not listed on the application, currently pregnant, or in the process of adoption or surrogate pregnancy?      24. A.   Have or do you or any applying family member requested or received a pension, benefits or payment because of any injury, sickness, disability of workers' compensation?      24. B.     Have or do you or any applying family member smoke(d) cigarettes?      24. 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