I am writing today to announce the closure of the New Mexico Independent. After three and a half years of operation in New Mexico, the board of the American Independent News Network, has decided to shift publication of its news…
While environmental activists played their part yesterday during demonstrations at the capitol building, going so far as to dress up as solar panels and to sing the tune of “You Are My Sunshine,” their counterparts, the anti-cap-and-trade contingency who has…
Roughly one quarter of University of New Mexico students are unimpressed with the state’s flagship public school, according to a survey that questioned college students about their higher education experiences.
Blue Cross Blue Shield of New Mexico did not provide the state Insurance Division with documentation for financial losses and expense figures cited as justification for last month’s controversial health insurance rate hike, Public Regulatory Commission (PRC) records show.
The company’s defense for failing to back up their figures with supporting evidence? Regulators did not ask for any.
Insurance Division staff have not required Blue Cross Blue Shield NM, or other health insurers, to submit documentation supporting rate increase requests, Blue Cross Blue Shield officials said, leading PRC Commissioner Jason Marks to describe the Division’s regulatory culture as “insufficiently skeptical.”
Rate hike application ‘not properly documented’
When the Attorney General’s office hired award-winning insurance rate analyst and former New Jersey insurance regulator Allan I. Schwartz as an independent expert to review Blue Cross Blue Shield’s rate hike filing, he reported that supporting documentation for most of the figures cited by the company was missing. And what little data was available, Schwartz concluded, contradicted the company’s claims.
The company’s requested rate hike was not justified, he concluded.
“The BCBSNM rate filing was not properly documented and supported,” Schwartz said in testimony to the Insurance Division March 2. “The filing did not provide sufficient documentation regarding numerous aspects of the BCBSNM rate calculation … Hence, the filing does not provide reasonable actuarial support for the proposed rate changes.”
Approving the rate hike would “continue a pattern of large rate increases for New Mexico health insurance consumers,” Schwartz cautioned, making it “increasingly difficult” for New Mexicans to afford individual health insurance.
The company presented numerous complex economic expense and loss indicators — variables such as “duration adjustments,” “deterioration adjustments,” and “annual deductible leverage.”
These figures were used to calculate an “Indicated Rate Change.”
Data presented contradicted BCBS claims
But the figures may have been smoke and mirrors, Schwartz suggested.
“The problem with the BCBSNM filing is that none of these various components … were documented or supported,” he said.
Where data was available, it contradicted Blue Cross Blue Shield’s claims, Schwartz found.
The “annual base trend” is an estimate of past financial losses. It is used to adjust projected future revenues from individual insurance policy premiums.
Schwartz calculated the company’s actual yearly loss trends on individual-market insurance policies over the past seven years and found they had varied between 4 and 8 percent — well below the 10 percent a year claimed by Blue Cross Blue Shield.
“Based upon this analysis, the loss values used in the BCBSNM rate filing are inflated and result in an excessive rate indication,” Schwartz said.
The Insurance Division and Attorney General’s office staff nevertheless negotiated a weekend rate settlement deal to raise Blue Cross Blue Shield rates by 21.3 percent for approximately 40,000 New Mexicans, without a public hearing that had been ordered by PRC commissioners. Former state insurance superintendent Morris “Mo” Chavez resigned in the face of outrage over the deal expressed by policyholders and PRC commissioners. Interim superintendent Tom Rushton, who helped negotiate the deal, subsequently resigned after PRC commissioners voted to direct him to vacate Chavez’s approval of the rate hike.
Parent company had surplus of $6.7 billion
Last month’s rate hike was just the latest of many, The Independent found. The Insurance Division had approved Blue Cross Blue Shield rate hikes every year since 2004, PRC documents show.
Blue Cross Blue Shield NM officials and former state insurance superintendent Morris “Mo” Chavez repeatedly raised the specter of the insurer’s solvency and financial losses. But asked about the financial condition of the insurer’s parent company, Health Care Service Corporation, Schwartz painted a very different picture, testifying the firm “has a strong financial position.”
“At year-end 2009, Health Care Services Corporation had a surplus of about $6.7 billion,” Schwartz testified, citing the corporation’s annual report.
In each year since 2004, the Insurance Division approved Blue Cross Blue Shield NM rate hikes. But for each year since 2005, Schwartz found, Health Care Service Corporation had a net income of at least $500 million, for a total net income of $4.4 billion.
Health Care Services Corporation’s net income last year exceeded $740 million, according to a May 25 online company profile.
Health Care Services Corporation’s annual report also showed “a much lower level of expenses” than Blue Cross Blue Shield NM claimed to the Insurance Division, Schwartz noted.
Blue Cross Blue Shield told state regulators that 26 percent of insurance premium revenues go to corporate expenses, but the parent company’s annual statement shows an 11 percent expense ratio, Schwartz said.
“While there may be an explanation for the dramatic difference in the expense ratios shown for Health Care Services Corporation as a whole and the values BCBSNM included in its filing, BCBSNM has not provided such an explanation,” Schwartz said.
Nor did the company include in their projected future losses, the savings resulting from disease prevention and wellness programs, Schwartz noted — even though those programs had explicitly been adopted to reduce policyholders’ medical claims costs.
Regulators did not request supporting documentation
Blue Cross Blue Shield did not provide supporting documentation for its claims because they were never asked to do so, according to company officials.
The Blue Cross Blue Shield rate increase filings included “everything required by the New Mexico Insurance Division,” Director of Actuarial and Underwriting Department Kevin Carr testified April 9, citing a Division checklist for rate increase filings. “We are not required by the NMID (Insurance Division) to include all of this documentation in our rate filing.”
“Based on my discussions and correspondence with the (Insurance Division) staff, they felt that our assumptions, including trend, were reasonable,” Carr testified.
Rate increase filings in New Mexico “generally do not include all of the underlying data”, Carr said. “In fact, based on my review of rate filings of other insurers in New Mexico, we generally provide much more information in our filings than most of the other insurers.”
Insurance Division staffers take insurers’ figures at face value, Carr’s testimony suggested.
For example, the 10 percent “annual base trend” figure Schwartz found to be inflated had been accepted by Insurance Division staffers even without the underlying data, Carr claimed.
“The 10 percent assumption for the annual base trend was specifically reviewed by and discussed with (Insurance Division) staff as part of the rate increase process, and they agreed that it was a reasonable assumption,” Carr said.
Insurance Division staff did not question the other figures, Carr said.
“The (regulatory) culture is insufficiently skeptical,” PRC Commissioner Jason Marks said. “On health care, the assumption is costs are just a national disaster and nothing can be done about it … that it’s unavoidable. But rates are rising faster than needed. There needs to be more skepticism, and related to that I’d like to see a different orientation. The regulator has a responsibility to make sure every penny passed on (to consumers) is required by law.”
Marks had described last month’s weekend rate hike settlement as “a back room deal,” a reference to the Insurance Division’s failure to hold public hearings.
The Division has a responsibility to confirm insurers have prudently incurred the expenses cited in rate change filings, Marks said.
“Just because there’s a cost in your accounting system doesn’t mean you accrued it responsibly and can pass it on to consumers,” Marks said.
Insurance Superintendent Morris Chavez
State Insurance Superintendent Morris Chavez resigned Tuesday morning, following intense criticism for his approval last month of a 21.3 percent rate increase for Blue Cross Blue Shield New Mexico individual policyholders without any public hearings.
But last month’s contentious rate hike was nothing new.
The state Public Regulation Commission (PRC)’s Insurance Division has approved rate increases for Blue Cross Blue Shield individual health insurance policies every year since 2004, according to state Insurance Division documents obtained by The Independent.
The Independent sought comment from Chavez Tuesday morning, only to learn staff was scrambling to announce his resignation.
In several cases, the rate hikes were comparable to this year’s increase, exceeding 20 percent.
Cumulatively, the increases approved each year since 2004 have pushed up premiums for Blue Cross Blue Shield NM policyholders by as much as 154 percent, Insurance Division records show.
In 2009 alone, rate increases for the company’s Blue Choice and Blue Choice Plus policies increased 19.6 percent and 24 percent, respectively. The company’s NM Major Medical policies saw a 2009 rate increase of 24.7 percent and Number One policy rates increased 22 percent in 2009.
The financial impact of rate increases on policyholders can be profound, policyholders told The Independent.
Moya Melody and her husband Kim Radsliff, Santa Fe residents, now spend 30 percent of their income on their Blue Cross Blue Shield NM policy, Melody said.
Last month’s rate increase brought their montly premiums up to $1,305 a month, Melody said. When they first bought their Blue Cross Blue Shield NM policy in 2004, they paid $562, or 16 percent of their household income, Melody said.
Two PRC commissioners want more transparency
Health insurance rate increases have not been contested before in New Mexico, PRC Commissioner Jason Marks told The Independent.
“The only insurance rate increase appealed … in the past decade was an appeal two years ago over title insurance,” Marks said.
PRC Commissioners knew about the 20 percent Blue Cross rate increase in 2009, but had not been aware that the Insurance Division had routinely approved rate increases since 2004, Marks said.
“We knew about the 20 percent (Blue Cross) rate increase last year, but this 150 percent increase (since 2004) is news to me,” Marks said.
In the future, health insurance rate increases exceeding 10 percent should trigger public hearings and full Commission review, Marks said.
Commissioner Jerome Block Jr. agreed.
“It’s unfortunate the Insurance Division has treated rate increases as a routine or typical process,” Block told The Independent. “These aren’t typical times. New Mexicans are struggling. I’d like to see the 10 percent threshold serve as a red flag for public hearings and Commission review.”
The Commission also needs to investigate why Blue Cross Blue Shield NM is the only individual health insurance provider in much of rural New Mexico, Marks said.
Blue Cross Blue Shield NM spokeswoman Becky Kenny did not respond to repeated requests for comment on the rate increases. Nor did Kenny respond to requests for information regarding executive salaries.
Kenny refused to disclose the Blue Cross Blue Shield NM’s tax filings, and would not say whether or not the not-for-profit would provide tax filings to policyholders. Blue Cross Blue Shield NM is a division of Health Care Service Corporation (HCSC), a mutual insurance company that is owned by its customers. Profits must be reinvested in the business or given to customers.
HCSC’s chief executive officer was paid $10.6 million in salary and bonuses in 2008, according to documents filed with the Insurance Division by Consumers Union attorney Sondra Roberto.
