Higher assigned Risk, Blue Cross Rates Loom : Medical Policy Costs to Rise 15% to 20%

Blue Cross of California will raise premiums affecting 3 million policyholders--including 2.5 million participants in group medical policies--by an average of 15% to 20% in the coming year, its executive vice president said Thursday.

“We’ve experienced a substantial increase in costs in the last few months,” said the Blue Cross official, John Cole. “Practitioners are charging more. There’s more utilization of their services. People are going to the hospital and staying longer than just six months ago. And every day there are new drugs, new machines, new technologies, and they all cost money.”

Cole said the increases will be phased in gradually as policy renewals come due in coming months.

“Some of the increases will be higher, because the policyholders are utilizing more medical services, and some will be lower,” he said.

The company official predicted that many of Blue Cross’s group policy holders--which include such major companies as Pacific Gas & Electric Co. and First Interstate Bank--may decide to adjust their policies to provide different kinds of benefits to employees, rather than pay the higher rates.

Blue Cross writes about 10% of all the medical insurance policies in California and, after Kaiser Permanente, is the second largest health insurer in the state. Cole asserted that the rate increases it imposes will be in line with trends in “the entire industry” in coming months.

The San Francisco Chronicle reported Thursday that Blue Cross will raise its group health insurance premiums next year by 20% to 30%, and that the company has been taking such heavy losses that its solvency is threatened.

The newspaper cited a financial report that Blue Cross had filed with the state Insurance Department showing losses exceeding $30 million in each of the last three quarters and a capital surplus that had dropped from $87.3 million at the end of 1986 to $11 million on Sept. 30.

Deny Firm in Trouble

However, both Cole and state insurance officials strongly denied Thursday that Blue Cross is in danger of going broke.

Assistant state Insurance Commissioner Richard Roth cautioned that capital surplus should not be confused with cash reserves. He said the state Insurance Department believes that Blue Cross has an adequate cash flow to insure solvency.

Roth’s boss, Insurance Commissioner Roxani Gillespie, said that although Blue Cross has suffered losses recently, it has been taking steps to correct its financial situation, including the planned premium hikes.

“This is something we (Blue Cross and the Insurance Department) have both seen coming,” Gillespie said. “We have been working with them very closely. We and they together have laid out a plan as to how they will attack their problems. They are rewriting their business and changing coverage so they don’t prolong their losses. In addition, they have been doing a lot of other things, such as selling their home office building.”

‘Strong Balance Sheet’

Said Blue Cross’ Cole: “The truth of the matter is we have a very strong balance sheet and we continue to make the moves that make us a very strong company.”

For example, he said, Blue Cross recently cut its operating budget by $20 million, or about 10% of the total, and it laid off or retired 1,000 of its staff of 5,700 people.

However, Cole said the company is unwilling to justify rate increases on its many different group and individual coverage plans by making public its claims and other loss costs on each of the plans. “That’s competitive information,” he said.

The company’s public relations spokeswoman, Jeannette Hartman, declined earlier this week to give specific company loss cost figures justifying a recent decision to adjust benefits to sharply increase the out-of-pocket, or unreimbursed, medical costs of 58,000 of its individual policyholders in three different “prudent buyer” plans.

Competitive Information

“We feel that if we release information about the losses of specific plans, that would give our competitors information that would put us at a disadvantage,” she said.

Cole said that basically all the public needs to know is “why our rates are going up, and they’re going up because medical costs are going up. That causes the carriers to adjust their premiums accordingly.”

He said Blue Cross will not lower the benefits of its group policies, rather than increasing premiums, a tactic it has been using with its 500,000 individual policyholders.

“The group business is different,” he explained. “The employers want more choice in benefits, more availability. . . . So it’s much more likely there will be a straight premium increase.”

Employers’ Options

But, he added, many employers may now want to examine such alternatives as restricting their employees’ choice of doctors, to use Blue Cross’ preferred physicians, as a trade-off against lower rates.

Some individual policyholders who have contacted The Times have suggested that Blue Cross feels freer to cut individual benefits because the individuals have less clout with the insurer and, often, little ability to choose alternatives, especially if they are sick and cannot easily obtain other coverage. Cole indicated that Blue Cross’ big group customers do tend to be more demanding.