State Regulators Probe Increase in Some Blue Cross Premiums

Two California regulators said Monday that they were investigating whether premium increases recently imposed by Blue Cross were paying for the acquisition late last year of its parent company, WellPoint Health Networks Inc.

Insurance Commissioner John Garamendi called Blue Cross’ premium hikes “outrageous.” They were imposed on an unknown number of Blue Cross policyholders in the state. The higher premiums were applied a few months after Anthem Inc. bought Thousand Oaks-based WellPoint in a deal valued at $21 billion.

The merger created the nation’s largest health plan with more than 28 million members nationwide. The combined company, headquartered in Indianapolis, operates as WellPoint Inc.

Garamendi initially opposed the deal because he feared that the new company would raise premiums to cover associated financing costs. He approved the deal only after company executives pledged that California policyholders would not pay for it.

“It was very clear that no part of any premium can be used to pay for merger costs,” Garamendi said in an interview Monday. “If we find that any increase was connected to the merger, it will be rolled back.” Garamendi said he began his probe in January after Blue Cross informed his office it was raising rates.

The Foundation for Taxpayer and Consumer Rights, a Santa Monica-based consumer advocacy group, sent a letter Monday to Gov. Arnold Schwarzenegger demanding an investigation into Blue Cross fee increases on HMO plans and other lines sold under the state Department of Managed Health Care.

Health care agency spokeswoman Lynne Randolph said the agency would look into the letter’s complaint that some individual policyholders had been notified that their premiums were going up as much as 50%. “If they are significantly above what their medical costs are, then that is something we’d be very concerned about,” Randolph said, adding that the agency could impose fines if it found problems.

Blue Cross spokesman Michael Chee said the rate increases were “in no way” related to the merger. The average rate increase on individual Blue Cross policyholders this year was 13%, he said. The rate hikes were necessary to cover changes in medical and drug costs and in consumption, he said.

WellPoint shares fell $2.39 to $118.81 on the New York Stock Exchange.