Commissioner Urges DOJ to Block Anthem/Cigna Merger

CIGNA-AnthemMerger

California Insurance Commissioner Dave Jones is urging the Dept. of Justice to block the merger of Anthem and Cigna. The merger, which is estimated to be worth more than $50 billion, would make Anthem the nation’s largest health insurer. Anthem’s market share would exceed 50% in 28 California counties and 40% in 38 counties. Jones said that the merger would reduce access to quality care, and reduce health insurance affordability. Under California law, the commissioner does not have direct approval authority over the Anthem and Cigna merger since Cigna is domiciled in Connecticut.

At a public hearing on March 29, Anthem executives claimed that the merger would result in $2 billion in savings. But Jones said that Anthem provided only vague and speculative assertions when asked to back up that claim. At the hearing, Anthem would not commit to pass any savings onto consumers through lower prices.

Jones said, “More competition in California’s consolidated health insurance markets is needed, not less. Competition helps restrain prices, provides choice, and improves quality. The Anthem and Cigna merger reduces competition in a market that is already dominated by just four health insurers. It will likely result in reducing consumers’ choices, increased prices, and lower quality care,” he said. Jones provided the following statistics about California in 2014:

  • The four largest insurers controlled 85% of the market.
  • Four insurers controlled 82% of the large group market statewide.
  • Four insurers controlled 88% of the small group market.
  • Four insurers controlled 93% of the individual market.
  • In Covered California, the four largest plans controlled 95% of the individual market in 2014 and 91% of the market in 2015.

State Finalizes Medical Provider Network Rules

The California Dept. of  Insurance has issued final regulations that include requirements for health insurers to create and maintain adequate medical provider networks. “These regulations go into effect immediately because they address a number of critical problems consumers have faced with insurers when seeking timely access to care,” says Insurance Commissioner Dave Jones. He had issued temporary emergency regulations, which have been in effect since late January 2015. The regulations require health insurers to do the following:

  • Include enough numbers and types of providers in the network to deliver covered services.
  • Adequately provide for the treatment of mental health and substance use disorders.
  • Include an adequate number of primary care providers and specialists with admitting and practice privileges at network hospitals.
  • Monitor and adhere to new appointment wait time standards.
  • Regularly report information about the networks and changes to the networks to the Dept. of Insurance for review.
  • Maintain accurate provider network directories available to the public and update them weekly.
  • Arrange out-of-network care at in-network prices when there are insufficient in-network care providers.

Insurance Regulation Shifting Toward Managed Care Agency

InsuranceGraphic

by David Gorn www.californiahealthline.org
The regulation of health insurance in California is shifting dramatically toward the Department of Managed Health Care, whose share of the commercial market has mushroomed in recent years. The change has come at the expense of the other agency in the state’s unusual bifurcated system, the California Department of Insurance, whose authority over commercial health plans plummeted from 20% of the market to about 12% between 2012 and 2014 — the most recent data available.

For a variety of reasons, the shrinking of the insurance department’s responsibilities is likely to continue, according to Katherine Wilson, CEO of Wilson Analytics, a health care consulting firm based in San Francisco. “It’s a huge shift, particularly in the individual market,” Wilson said. “And the change in the small-group market is huge too, just not as big.” In 2012, the insurance department regulated 71% of the individual market; by the end of 2014, that figure had plunged to just 18%. California is the only state in the U.S. with dual health insurance regulators.

Critics of the state’s divided approach note that it dilutes regulatory power by giving the insurance companies a wedge between the two agencies and creating needless inefficiencies in health care and how it’s paid for become increasingly complex.

“This dual structure contributes to consumer confusion, government and insurance carrier administrative burdens, and difficulty in monitoring what is being bought and sold in the insurance marketplace,” according to a 2011 paper by the Kelch Policy Group, published by the California Health Care Foundation. It also complicates the taxation of insurance companies: taxes on health plans regulated by the managed care agency are lower in many cases than they’d be if the same health plans were governed by the insurance department — an issue that is wending its way through state courts.

The Department of Insurance, led by Commissioner Dave Jones, has authority over old-fashioned indemnity plans and some PPOs. The managed care agency traditionally regulates HMOs, but recently it has picked up some types of PPOs. That has blurred the regulatory line between the two agencies. Perhaps more important, it has allowed some insurance companies the flexibility to essentially choose their regulator in many cases. That is a contributing factor in the shift of health plan supervision away from the insurance department.

Health insurers have said that consolidating policies under DMHC’s jurisdiction is more about achieving operational efficiencies and that the regulatory requirements are just as rigorous as insurance department rules.

But it’s also the case that some insurers feel uncomfortable with Jones, who is an elected politician with ambitions for higher office and does not shy away from public confrontation with the industry -– though as the data show, his influence over insurance companies is contracting.

Shelley Rouillard, appointed by Gov. Jerry Brown, has been director of the managed-care agency since December 2013. She has pursued several high-profile enforcement cases against health plans, including the failure to provide adequate mental-health treatment and giving patients inaccurate provider directories.

Neither agency, however, has the power to stop insurers from raising premiums, no matter how large the increases. Legislative efforts have been made to change the regulatory structure. Last session, for example, Assembly member Kevin McCarty introduced a bill that would have put all PPO insurance products under purview of the Department of Insurance. That proposal went nowhere, but it is a two-year bill so it could return during the legislative session. More likely, the Department of Managed Health Care will continue to assume a growing regulatory role, Wilson said. Over the years, there have been calls to end California’s bifurcated health insurance regulation, but if the trend continues it may resolve itself, she said. “It would be sort of a de facto single regulator.”

Commissioner Clashes With Covered California Over Specialty Drugs

Commissioner Clashes With Covered California Over Specialty Drugs
Insurance Commissioner Dave Jones has come out against a specialty drug proposal by Covered California. Under the Covered California plan, Californians would have to pay up to $500 per month per prescription for specialty drugs needed to treat chronic illnesses; that’s in addition to their monthly insurance premiums.

Jones and consumer groups say that the proposal will require many Californians with chronic illness, such as MS, Rheumatoid Arthritis, and HIV/AIDS, to pay thousands of dollars in the first few months of their health insurance policy year to get life-sustaining drugs. The commissioner and consumer groups urged that Covered California adopt a much lower $200 monthly cap for these specialty drugs, as other states have done.

“Covered California’s specialty drug proposal is a potentially discriminatory benefit plan design that would propel vital, life-sustaining drugs out of reach for many Californians. This plan creates an insurmountable affordability barrier for the average consumer, particularly those who struggle with chronic and life-threatening conditions that require multiple prescriptions,” said Jones.

Californians with chronic illnesses often take multiple drugs, which means that they could have to pay a minimum of $1,000 a month out-of-pocket even though they have health insurance. The commissioner was joined by consumer and patient advocates from California Chronic Care Coalition and Project Inform, who described the negative financial and health impact Covered California’s plan will have on patients who need these drugs.

The commissioner noted that insurance code sections 10965.5(a)(3) and 10753.05(h)(3) prohibit practices or benefit designs that discourage consumers with significant health needs or conditions from enrolling in health insurance products with Covered California’s standard benefit design. Over the past two years, the Department of Insurance has rejected some plan designs with co-insurance requirements on specialty drugs because of their discriminatory impact on those with certain medical conditions.

Anne Donnelly, Director of Health Care Policy at Project Inform said, “The caps being recommended by Covered California staff are welcome but they do not go far enough; $500 per prescription per month for most of those in Covered California plans will mean that many with chronic conditions will be forced to exhaust limited savings or forego necessary health care.”

Blue Shield Of California Under Pressure

Blue Shield Of California Under Pressure
Blue Shield of California has been in the news lately and not in a good way. The Los Angeles Times originally broke the story that the company has been stripped of its tax-exempt status. Also in the news, the company’s former chief technology officer is suing after being dismissed before collecting on his $450,000 bonus.

Tax authorities stripped Blue Shield of California of its tax-exempt status in California and ordered the company to file returns dating to 2013, potentially costing the company tens of millions of dollars. Insurance commissioner Dave Jones said, “The Franchise Tax Board decision to terminate Blue Shield’s tax-exempt status confirms what I have said for years – that Blue Shield charges excessive rates and acts like a for-profit health insurer. Blue Shield is also dodging the payment of premium taxes by taking advantage of a legal loophole that allows Blue Shield to move its health insurance products from Department of Insurance regulation to Department of Managed Health Care regulation.”

The Department of Insurance collects premium taxes from all for-profit and non-profit health insurers. Jones said that Blue Shield has moved most of its health insurance policies over to the Department of Managed Health Care. “We need to pass AB 1434 by Assembly member Kevin McCarty to close the loophole that allows Blue Shield to move its health insurance products to the Department of Managed Health Care to avoid the strong consumer protection oversight of the Department of Insurance and avoid paying premium taxes,” he said. The Blue Shield loophole costs the state $100 million in premium taxes annually. As a tax-exempt company with surplus of $4.2 billion Blue Shield was able to accumulate an enormous amount of money on which it did not pay state taxes by evading the tax on the premiums it collects, he added.

Blue Shield of California issued the following statement in response: Blue Shield of California is a mission-driven not-for-profit health plan with a demonstrated commitment to the community. A longtime supporter of healthcare reform, we limit our net income to 2% of revenue and have contributed $325 million to our foundation’s efforts to improve the health safety net and address domestic violence. We pay federal income taxes, state gross premium tax and Affordable Care Act taxes and fees. We believe we meet the requirements for a state income tax exemption and have challenged the California Franchise Tax Board’s finding to revoke our tax exempt status. We filed California state income tax returns beginning in the 2013 tax year. The FTB decision has no bearing on our ability to continue to meet the needs of our members and community and we remain in strong financial health. Regardless of whether we prevail in our tax dispute, we will remain a not-for-profit.

Commissioner Issues Emergency Regulation Over Networks

California’s Insurance Commissioner, Dave Jones, issued an emergency regulation to ensure that health insurers have enough medical providers in their networks to provide timely access to medical care. The emergency regulation will require insurers to do the following:

  • Include enough primary care physicians who accept new patients to accommodate enrollment growth.
  • Include enough primary care providers and specialists who have admitting and practice privileges at network hospitals.
  • Consider the frequency and type of treatment that’s needed to provide mental health and substance use disorder care when creating the provider network.
  • Adhere to and monitor new appointment wait time standards.
  • Report to the Department of Insurance about their networks and changes to their networks to the on an ongoing basis.
  • Provide accurate provider network directories to the Department as well as policyholders and the public.
  • When there aren’t enough in­-network providers, make arrangements to provide out­-of­-network care at in-network prices.
  • Require network facilities to inform patients, ahead of time, when an out-­of­-network medical provider would be providing a non-emergency procedure or care.

The emergency regulation addresses problems with access to doctors, hospitals, and other medical providers in 2014 when many health insurers reduced their medical provider networks and/or shifted to offering exclusive provider organization (EPO) health insurance products with no out­of-network benefits. Consumers have complained about having trouble getting appointments with doctors, traveling long distances to get in-­network medical care, and finding that the health insurer’s provider directory listed doctors that were not in the network. Jones said, “Consumers have been forced to pay huge out-­of­-network charges when their health insurer fails to provide adequate medical providers in their network or when care is provided by out­of­network providers without even informing or asking the consent of the patient.”

Commissioner Complains About Blue Cross Rate Increase

Anthem Blue Cross is imposing a 9.8% premium increase on its small group health insurance policies. Insurance Commissioner Dave Jones is calling the increase unreasonable. “This…is the fourth consecutive rate increase by Anthem on small employers that the Department of Insurance found excessive and unreasonable. Over the last 24 months Anthem has raised rates on members in these small group policies an average of 24.9%. The Department of Insurance’s finding that Anthem’s rate increase is unreasonable is based on Anthem’s excessive return on equity or profits, its excessive pre-tax pricing margin, its unjustified high-pricing trend of 8.6 percent, which includes a prescription drug trend of 21.4%, and its failure to adjust the rate for the better health status of its remaining members. Also, last year, Anthem shifted $75.5 million of income to a premium deficiency reserve. This accounting maneuver was unwarranted and unjustified and decreased Anthem’s reported net income for 2013 and masked the fact that the company’s profit was over 20%. In five out of the last six years Anthem has attained a greater than 20% profit,” Jones said.

Commissioner Approves Emergency Regs for Essential Health Benefits

Insurance Commissioner Dave Jones approved an emergency regulation requiring health insurers to cover all essential health benefits for new policies in effect after January 1, 2014. The Affordable Care Act requires non-grandfathered health insurance policies in the individual and small group markets to provide coverage for a comprehensive package of healthcare benefits, known as “essential health benefits.” This applies to plans inside and outside of the health benefit exchange.

Jones said, “Our essential health benefits emergency regulation ensures all Californians purchasing individual or small group health insurance policies will have coverage for a comprehensive set of health benefits when they need medical care. In the past, some policies have included very limited or no coverage for important healthcare services. Starting in January all the new health insurance policies will cover 10 broad categories of essential benefits that will meet most healthcare needs. Issuance of the emergency regulation is a critical step in the implementation of the Affordable Care Act, because it provides the legal authority for the department to implement the essential health benefits requirement as we review new health insurance policies sold, including those in the Exchange.”

The Following 10 categories of benefits make up the essential health benefits coverage:

1. Ambulatory patient services
2. Emergency services
3. Maternity and newborn care
4. Prescription drugs
5. Hospitalization
6. Laboratory services
7. Pediatric services, including oral and vision care
8. Rehabilitative and habilitative services and devices
9. Preventive and wellness services and chronic disease management
10. Mental health and substance use disorder services, including behavioral health treatment.

Commissioner Calls Blue Shield’s Rate Increase Unreasonable

Insurance Commissioner Dave Jones says that the 11.7% average rate increase imposed by Blue Shield of California is unreasonable. The increase, effective March 1, 2013, affects about 268,000 Blue Shield individual health insurance policyholders. Department actuaries found that the average 12-month increase for individual members in all plans is 11.7% while the maximum 12-month increase reached 19.9% before changes associated with age, geography or family status occur. Blue Shield individual policyholders are experiencing an average increase as high as 20.5% over a 24-month period, he said. State actuaries say that Blue Shield’s 20.2% projected administrative costs are the highest among major carriers in the individual market.  The core medical trend is 10.6%. Blue Shield added 2.3% to policyholders’ premiums to account for projected losses due to HIPAA/conversion plans. The Department determined this action to be unreasonable because projected losses from people who came out of the group market should not be shifted to and/or subsidized by the individual market.  Blue Shield’s rate filing was submitted to the department on December 31, 2012.

The company issued the following statement:
Blue Shield of California’s Individual and Family Plan rates are reasonable. Here’s why:
• Our rate increases are lower than recent rate increases approved for most of our major competitors.
• Our premiums in the individual market are competitive with, and in some cases lower than, those of our competitors.
• These rates reflect the increases needed to keep pace with the medical costs for our members in 2013. Unfortunately, the cost of hospital and physician services, prescription drugs, and diagnostic tests continues to rise.
• Our rates meet the federal Medical Loss Ratio standard requiring 80% of premiums to be spent on medical care for our members. An independent actuary certified our rates as reasonable and meeting the MLR standard.
• Blue Shield has lost tens of millions of dollars in the individual market in recent years and we expect similar losses in 2013.

That said, we share the concerns of regulators and consumers about rising health insurance premiums. As a not-for-profit company whose mission is to provide access to quality, affordable coverage for all Californians, we are taking many actions to address rising medical costs, including collaborations with providers that improve quality while saving money for our customers. In addition, we limit our profits to two percent of revenue, returning anything above two percent to our customers and the community. Our 2% pledge assures our members that when we raise rates, it is not done to increase our profits.

Commissioner Offers His Own Geographic Rating Proposals

During a special legislative session, the Senate and Assembly health committees held hearings  to examine health-reform bills ABX1-2 (Pan) and SBX1-2 (Hernandez). Insurance Commissioner Dave Jones says he is concerned that these bills, which contain six- or 13 geographic rating regions could increase health insurance rates dramatically. “It is critical that the Legislature amend these bills to avoid an increase of up to 23% on hundreds of thousands of Californians in 2014,” he said.

An analysis by the Insurance Commission reveals that maximum increases could be 22.6% for the Legislature’s proposed six-region plan and 25.1% for its 13-region plan. However, the insurance commissioner’s office created an 18-region plan, which Jones said would only increase rates by up to 8%.

Jones offers the following analysis:

Geographic Rating Region Proposals Comparison

Six-Region Proposal:
• Maximum increase of 23%;
• Average increase of 9.1%;
• Areas that would see the greatest rate shock include all Counties north of Kern including the foothills, Monterey, and all of Northern California except the Bay Area and the Central Valley (up to 19%); Bay Area (up to 23%); and Los Angeles (up to 22%).

13-Region Proposal:
• Maximum increase of 25.1%
• Average Increase of 4.0%
• Areas that would see the greatest rate shock include greater Sacramento (up to 22.2%); the Bay Area (up to 21.5%); and Los Angeles (up to 25.1%)

18-Region Proposal:
• Maximum increase of 8%
• Average increase of 3.5%
• Far Northern California (8%) (Butte, Del Norte, Humboldt, Lassen, Mendocino, Modoc, Nevada, Plumas, Shasta, Sierra, Siskiyou, & Trinity)
• Eastern Central Valley and Foothills (6.7%) (Calaveras, Tuolumne, Mariposa, Madera)
• Northern Sacramento Valley (6.7%) (Lake, Tehama, Yuba, Yolo, Colusa, Glenn, Sutter)

Last Updated 06/19/2019

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