SANTA FE, NM (By Bryant Furlow, New Mexico Independent) August 29, 2010 — A contentious all-day hearing Wednesday left many Blue Cross and Blue Shield of New Mexico customers saying they see little hope for relief from a controversial 21.3 percent increase in their health insurance premiums. That’s despite a revelation the company’s cash reserves have now reached $7.2 billion, and one state lawmaker’s call for an independent assessment of the company’s request to raise the rates.

“This is a dog and pony show,” Santa Fe resident Vance Ley told The Independent at the state Division of Insurance hearing in Santa Fe. “It’s very unlikely they’ll rescind the increase.”

The company said it had to raise rates because it has lost $20 million on New Mexico policies over the past three years.

Rates have steadily gone up, despite billions in reserves

But this year’s rate hike was just the most recent in a seven-year string of annual premium increases on Blue Cross policyholders who purchase their own health insurance, Division records show.

During that time, Health Care Services Corporation, of which Blue Cross Blue Shield NM is a division, has accumulated $7.2 billion in surplus reserves, according to new second-quarter corporate earnings reports, Consumers Union attorney Sondra Roberto said.

That would be enough money to absorb Blue Cross’s claimed losses for 1,000 years, a policyholder pointed out.

“This is a very profitable company,” Roberto said. “Its surpluses since 2009 have grown from $6.7 billion to $7.2 billion. Any of its relatively small losses pose no threat to the company.”

The company should use some of its surplus to absorb losses and avoid raising rates on policyholders during a recession, Roberto and several policyholders argued.

But state Division of Insurance staff, the Attorney General’s office and Blue Cross attorneys all asked Division hearing examiner Alan Seeley to reaffirm the rate hike.

Even the Attorney General’s office’s expert witness Allan Schwartz – who reiterated earlier testimony that Blue Cross had not sufficiently documented its claimed cost figures, and whose analysis found the insurer’s rate filing had exaggerated company losses – said the 21 percent increase was “reasonable, given the circumstances.”

Blue Cross’s rate hike had been unfairly singled out for scrutiny, attorney Paul Bardacke argued.

The rate hike “is in line with a 24 percent increase the state approved for Presbyterian – Blue Cross’s major competitor in the New Mexico market – just last year,” Bardacke said. (The Independent requested Division of Insurance records on Presbyterian’s rate history in July, but Division staff did not locate the records until Wednesday evening. The records confirmed Bardacke’s claim that Presbyterian was granted a 24 percent insurance rate hike in 2009.)

Opposition to Blue Cross’s rate hike was only heard after the hearing, during a public comment period.

“I came to this hearing under the impression this was still under discussion and public opinion would be taken into account, but obviously, I was mistaken,” Santa Fe resident Jack Huberman said after the hearing. “Now I’m wondering what we’re all here for. Last September – not even a year ago – we had another 24 percent rate increase. Now there’s another increase for 21 percent. I hope that’s taken into consideration.”

Of the five Public Regulation Commission (PRC) commissioners, who oversee the semi-autonomous Division and pushed for public hearings on Blue Cross’s rate hike, only Jason Marks attended the majority of the all-day hearing. AG Gary King was not present.

Blue Cross executives brought bodyguards to hearing

The outspoken audience of more than 100 people repeatedly hissed, groaned and shouted at Blue Cross attorneys during the hearing.

The audience was peppered with at least ten armed plain-clothes security officers, including at least five bodyguards hired by Blue Cross to protect the company’s executives and attorneys. Other Blue Cross bodyguards were deployed throughout the building, monitoring stairwells and exits.

Several PRC insurance division fraud investigators provided security for Superintendent of Insurance John Franchini.

Blue Cross executives left the hearing before the public comment period, surrounded by their security contingent.

“Where are you going? Why are you leaving now?” audience members shouted during the Blue Cross executives’ exodus.

Commissioners expect the increase will be reaffirmed

The 21 percent rate hike resulted from an April settlement between Division staff, the AG’s office, Blue Cross and policyholder Jody Neal-Post, who had filed a lawsuit in response to the Division’s earlier approval of a 24.6 percent increase.

The rate settlement — reached the weekend immediately before a scheduled public hearing on the rate hike –outraged policyholders and PRC commissioners, leading to insurance superintendent Morris “Mo” Chavez’s resignation.

Acting superintendent Johnny Montoya subsequently suspended the rate hike pending Wednesday’s public hearing.

But many policyholders in the audience said they held out little hope that suspension would survive.

Their pessimism was reasonable, two PRC commissioners told The Independent.

“I don’t want to get people’s hopes up,” Marks said. “The fact is, this is an uncontested settlement.”

“I expect the rate increase will be reaffirmed,” Commissioner Jerome Block, Jr. said before the hearing. “The data is there. The insurance division staff – their work was not flawed. At least the public has a chance to vent its opinion and hear why the rate (hike) is justified. If it’s granted, at least they’ll know why it is.”

Block briefly attended the hearing Wednesday morning but did not return after lunch, to the consternation of some of his Santa Fe-area constituents.

Attorney General defended rate increase compromise as ‘a bird in the hand’

Although Assistant Attorney General Brian Harris asked Seeley to reaffirm the rate hike, he emphasized the AG’s agreement to the April settlement had not been the result of confidence the hike was justified.

The settlement cut the rate hike from 24.6 percent to 21.3 percent, on average, for 40,000 New Mexicans, Harris said.

“It was very much a matter of the bird in the hand versus two in the bush,” Harris said. “I believe the AG got the best result he could under the circumstances.”

AG Gary King felt “honor-bound” to support the settlement, Harris said.

“One has to wonder, if the AG thought there was insufficient support (for the rate hike), why he’d approve it,” Bardacke said.

“It wasn’t a question of having enough data – we knew we didn’t,” Harris responded. “We also knew doing anything about that would be difficult. We had a bird in the hand worth $3 million a month to New Mexican policyholders.”

Cost containment efforts questioned

Illinois-based Health Care Services Corporation (HCSC), of which Blue Cross Blue Shield New Mexico is a division, has pushed to contain rising costs to mitigate rate hikes’ impacts on patients, its attorneys argued. Corporate layoffs and the construction of a new headquarters building in Albuquerque have saved the company more than $1 million a year, they said.

But Blue Cross and HCSC executives’ salaries and bonuses have not been cut, Blue Cross Vice President Kurt Shipley conceded, to howls from the audience.

Top HCSC officials have received bonuses of up to $15 million a year, according to filings with the Illinois Department of Insurance.

“I’ve heard so much mumbo jumbo this morning my head is spinning,” said Santa Fe physician Timothy Wong. “Mark my words: next time this year, they’ll come back to ask for another rate increase.”

Many policyholders have had to increase their deductibles to help minimize annual rate hikes, they said. But Blue Cross officials have said they will no longer be allowed to do that, policyholders complained.

Health insurance costs more in rural areas, Blue Cross says

Insuring rural New Mexicans is more expensive than insuring urban policyholders, Blue Cross Blue Shield officials and attorneys repeatedly argued when explaining losses on individual market policies over recent years.

“But I didn’t hear evidence the rate of increase is higher in rural than urban areas,” Commissioner Marks noted. “If that was the case, it would buttress Blue Cross’s case. I also did not hear questions or any analysis of whether operating expenses factored into these rates – or whether they depending on anything but wishful thinking. One could ask whether the company has behaved prudently in incurring expenses (such as) office buildings they’ve built, executive compensation.”

State senator calls for an independent analysis

Sen. Dede Feldman, D-Albuquerque, called on the Division to seek an independent analysis of Blue Cross’s rate filing from a contract actuary.

“This proceeding’s been somewhat awkward since all the testimony is in defense of the settlement,” Feldman said. There’s been no opportunity for those who disagree with the 21.3 percent to ask questions. … It would behoove us all to take a deep breath and get a truly independent actuarial opinion.”

Incoming insurance superintendent John Franchini said that was a good idea for future cases, but that it was too late to do so in this case.

But several policyholders liked Feldman’s idea.

“I received rate increases in 2005, 2006, 2008, 2009 and 2010,” policyholder Ed Oppenheimer said. “When I try to change plans, I start from scratch – preexisting conditions, the whole thing. But if Blue Cross wants to change my rates, I just get a letter in the mail.”