Costly safety nets for insured

Two of California’s largest insurers have been selling health coverage intended to be a safety net for the state’s sick and jobless at premiums that exceed state-issued rates, in some cases by thousands of dollars a year.

Two other companies -- Aetna and Health Net -- uniformly adhere to the state-issued rates. But a Times investigation found that Blue Shield of California’s premiums are as much as 55% higher. And those charged by Anthem Blue Cross have been as much as 36% higher.

The rates affect more than 13,000 people with Anthem coverage and more than 6,000 with Blue Shield policies.

When the higher rates were pointed out to Anthem, the company said it had erred and moved swiftly to make amends. In contrast, Blue Shield defended its rates. It said it was not required to follow the state-issued rate structure because the company did not believe it was legally binding. It also said it reports its rates annually to the state.


Regulators acknowledged that they had not scrutinized these premiums for years. But they have recently opened investigations.

The coverage at issue was established in 1996 by the federal Health Insurance Portability and Accountability Act, or HIPAA. A key goal was ensuring that people who lost their jobs were able to remain insured. HIPAA works in tandem with COBRA, a federal law that extends job-based group insurance coverage, entirely at the individual’s expense, for up to three years after a person leaves or loses a job. (COBRA stands for Consolidated Omnibus Budget Reconciliation Act, the 1986 law that created the program.)

Under HIPAA, insurers must offer their most popular coverage options to people whose COBRA coverage has run out, regardless of pre-existing conditions.

The higher premiums charged by the California insurers, which vary by the policyholder’s age and region, add up. For example, Blue Shield’s monthly premium for a family of four in Los Angeles with a 40-year-old primary policyholder is $1,461. That’s $401 a month, or $4,812 a year, above the cap.


Anthem’s 2009 monthly premium for the same family was $1,356 -- $296 a month, or $3,552 a year, above the cap.

In response to The Times’ findings, Anthem initiated a review and discovered errors in its rates, spokeswoman Peggy Hinz said.

So far, Anthem has determined that it has been overcharging enrollees ages 60 to 64 since 2006. Anthem said it appeared others had also been overcharged, and it was reviewing charges to all members since 2006. The company is sending letters to members who may have been overcharged and has promised reimbursement for overpayments, with interest. Anthem members with questions may call (800) 636-8991.

Blue Shield, on the other hand, stood by its rates and maintained that it had done nothing wrong.


“We think we are obeying the letter of the law, and there’s never been any indication that we aren’t,” spokesman Tom Epstein said.

Blue Shield, a nonprofit based in San Francisco, said that even with the higher rates it lost about $7 million on its HIPAA coverage last year and expects to lose up to $20 million on such policies this year.

“It’s been a pretty consistent money loser,” Epstein said.

For consumers, HIPAA coverage is expensive even under the state-issued rate structure. People without pre-existing conditions can obtain cheaper health insurance on the open market. Those who buy HIPAA coverage tend to have continuing medical conditions that most insurers would otherwise refuse to cover.


“These are people typically with pre-existing conditions -- serious health conditions -- who absolutely need health insurance and healthcare but are blocked from the marketplace,” said Rep. Jackie Speier (D-Hillsborough).

Even people with minor medical blemishes find themselves in need of HIPAA’s guaranteed coverage.

One 63-year-old woman in the Bay Area tried to buy insurance on the open market after her COBRA coverage ran out four years ago. But she was rejected for what she called “piddly reasons,” including maintenance chiropractic visits and the use of Fosamax, a widely prescribed drug that helps bones absorb calcium. She ended up with a HIPAA policy through Anthem.

Even with Anthem’s promised rate rollback, she will pay more than $700 a month for her HIPAA coverage -- too much, she said, for a policy with a $1,500 deductible.


“It’s very onerous,” she said in an interview. “I need it in case of utter disaster.”

As a state lawmaker in 2000, Speier wrote a bill to limit premiums because HIPAA policies had become so expensive that they in effect excluded the very people the coverage was supposed to help.

Speier’s law, which took effect in 2001, forbids insurers from charging more than the “average premium paid” by subscribers in the state’s high-risk insurance pool for coverage arranged through preferred provider organizations.

Shortly after the law was adopted, regulators met to work out implementation details -- including how to figure the average premium paid, said Sarah Soto-Taylor, a spokeswoman for the state Major Risk Medical Insurance Program, which runs the high-risk pool.


The Department of Insurance and the Department of Managed Health Care “got us all together and they had discussions about what would be the appropriate way to provide this data to them,” she said. “The agreement, and historically what we’ve been asked to provide them, is this weighted average -- weighted by the number of contracts [policies] for each region, each age range.”

Blue Shield’s Epstein said the company was aware of the state-issued rates. But, he said, the company developed its own method for calculating its rates almost from the beginning and never saw a reason to change.

In a 2004 e-mail to the state Department of Insurance, a lawyer for Blue Shield explained that, instead of the state’s weighted average, the company used a “straight average method” to calculate rates. The Blue Shield lawyer asserted that, under certain circumstances, “a weighted average will result in higher rates for everyone.”

But The Times’ analysis found that the opposite was true. Blue Shield’s premiums for 2004 and subsequent years were higher than the state’s weighted average rates for most consumers.


Epstein explained the discrepancy as an “innocent mistake” by a lawyer who told regulators in her e-mail that she was “not a rating expert.”

There is no evidence that the Department of Insurance responded to Blue Shield’s e-mail. And regulators have never taken action against an insurer over HIPAA rates.

But within the last several months both regulators became aware of variations in HIPAA premiums and opened inquiries, which are continuing.

“We really do view this with alarm,” said Lynne Randolph, a spokeswoman for the Department of Managed Health Care. “If people are being charged more than they should be, especially in this time of economic crisis, then the Department of Managed Health Care is going to be getting down to the bottom of it. And it could include an order to reimburse consumers.”


After its initial review, the department notified Blue Shield that its rates might not comply with the law.

The company defended its rates in a letter to the department, saying it had used a “straight average” for years and that regulators never objected.

Bryan Liang, executive director of the Institute of Health Law Studies at the California Western School of Law in San Diego, said the law did not allow an insurer to choose its definition of “average.”

Insurers have been allowed to “game the system by using whatever method they wish to push the premiums up, which is certainly not what the drafters or the Legislature intended,” Liang said. “The issue was affordability and a bright line as to what is allowed to be charged.”


Epstein said Blue Shield would recalculate its rates if so ordered.

“If our regulators’ interpretation of the law is that we should use the weighted average, we would switch to the weighted average,” he said.