Insurer's large rate hike proposal will be reviewed

A California health insurer proposing massive rate hikes said Friday morning that it will subject its rates to independent actuarial review.

Blue Shield of California drew criticism earlier this month after it proposed hiking rates as high as 59 percent for some individual policy holders. The proposal came just weeks after the federal health department announced proposed regulations that would subject "unreasonable" rate hikes to new scrutiny under the healthcare reform law.

"We regret that our members have received significant rate increases in recent months and want to be absolutely certain that the rates reflect our actual cost of providing medical care," said Blue Shield Chairman and CEO Bruce Bodaken in a statement. "To establish trust and confidence in our rate-setting process, we have taken the unprecedented step of agreeing to be bound by the conclusions of an independent third party. If this independent review finds that the rates are not sound, we will hold our members harmless by refunding the difference with interest."

New regulations proposed by the Obama administration would require states to scrutinize insurance rate hikes of at least 10 percent in the individual and small-group market in 2011. If a state does not have an “effective” process to review rate hikes, the feds will conduct the review.

However, the law does not allow the federal government to block a rate hike. The law relies on the power of the federal government to shine a light on large insurance rate hikes by requiring insurers facing scrutiny to post their justifications for the increase on their websites and on HealthCare.gov.

A massive rate hike proposal by another California health insurer last January boosted Democratic arguments for the healthcare reform law. The proposed 39 percent increase by Anthem Blue Cross was eventually lowered to an average of 14 percent after errors were discovered in the original filing.

Several states, including California, Massachusetts and Connecticut, made headlines last year by blocking large rate hikes after the reform law was enacted.

In its statement, Blue Shield said the company expects to lose $20 million to $30 million on individual health plans in 2011, citing risings costs for hospitals, physicians and prescription drugs. The proposed increases average 15 percent, the company said.

After Blue Shield announced the proposed increases, Health and Human Services Secretary Kathleen Sebelius said the proposal demonstrated why the healthcare reform law is necessary to protect individuals against insurers.

“If the law were repealed, we would be left with few tools to protect consumers against these kinds of rate increases,” Sebelius said in a statement. “Insurers would be able to spend more on profits, marketing, and CEO bonuses, instead of care.”