Comments on the Blue Shield of California Proposal to Increase Small Employer Health Insurance Rates, Effective July 1, 2013.

State Tracking Number: HAO-2013-0031
Released by: CALPIRG Education Fund

Executive Summary

Over 330,000 Californians in individual insurance plans will see average rate hikes of over 10% if the rate hike proposed by Blue Shield of California Life & Health Insurance Company goes forward as planned on July 1, 2013.[1]  

If approved, there will be real-life consequences for the consumers enrolled in the 23 different Blue Shield health care plans included in this proposed rate increase. Policyholders will see an average annual premium increase of $672.21, with some members paying as much as $6,697. Not only is Blue Shield’s requested annual premium rate increase three times higher than the rate of medical inflation, it comes while the median income for Californians has declined every year for the last five years when adjusted for inflation.[2]

Given the magnitude of this rate hike and its impact on policyholders, the insurer should be held to a high standard of scrutiny in justifying the need for such a significant increase. Yet Blue Shield failed to provide the California Department of Insurance with the necessary information required to fully assess the reasonableness of the proposed rate increase in their initial rate filing.  Only after additional supporting data was requested by the California Department of Insurance, did Blue Shield provide subsequent filings which shed more light on the predicted trends and costs for these plans.[3]

The California Public Interest Research Group (CALPIRG) Education Fund worked with the actuarial firm NovaRest Actuarial Consulting to analyze Blue Shield’s initial and subsequent rate filings submitted by Blue Shield to the California Department of Insurance, and the analysis was reviewed by policy staff at Health Access.[4]

In addition to these comments, CALPIRG Education Fund provided the California Department of Insurance on 9 May 2013 an initial evaluation based on Blue Shield’s initial rate filing and first subsequent submission (dated 30 April 2013) against the factors considered as part of the rate review process set forth in the SB 1163 Guidance. Following our initial assessment, the California Department of Insurance conferred with Blue Shield and sought additional documentation supporting their assumptions and projected costs. It is good news for California consumers that the California Department of Insurance required the insurer to thoroughly and publicly justify its significant proposed premium increase.

After analysis of the complete filing – inclusive of the three subsequent submissions – it appears that for the most part, Blue Shield provided sufficient background data for the requested rate increase. However, there are still several outstanding questions surrounding this filing, as noted below. We remain concerned that the rate increases outpace the changes in the consumer price index (CPI) more than threefold, and given Blue Shield’s stated intentions to file new rate plans starting January 2014. [5]

These rising health insurance rates are not sustainable for California’s small businesses and their employees. We encourage Blue Shield to pursue all available strategies to reduce the rising cost of care – not by cutting care or increasing deductibles – but by cutting waste and incentivizing prevention and care that get results. In addition, we encourage the California Department of Insurance to explore how the rate review process might, in coordination with other health reform efforts, spur such efforts by insurers to reduce costs while improving quality.

Key Findings 

1. Overall, the original filing lacked sufficient information for actuarial review.

We do not believe that Blue Shield’s initial filing provided information in sufficient clarity and detail such that a qualified health actuary could make an objective appraisal of the reasonableness of the rate. For example, the original filing not appear to include an appropriate actuarial memorandum, and the Milliman report included with the filing did not include much of the information on the source of assumptions that we would expect to see in a complete rate filing.

2. Blue Shield failed to provide sufficient data and explanation to fully support the factors that the rate increase is based on.

The quarterly rate increases included in this filing result in a total annual rate increase of 10.6% for the third quarter of 2013 and 11.2% for the fourth quarter of 2013. Our review of Blue Shield’s initial filing found that there was insufficient evidence to support the assumptions by which the rate increases were developed.  In the subsequent filings, Blue Shield did provide significant information regarding historic trends and trend development.  However, while claim trends are the largest factor in the rate development, there are additional adjustments beyond the trend that were not documented in the subsequent filings.

3. CALPIRG Education Fund is concerned that the loss ratio may indicate excessive premiums.

Loss ratios are often used to determine if the premium is consistent with expected costs.  The loss ratio for the product indicated as Baja HMO 10 (70.8%) is significantly less than the other products. This may indicate that the premium rates do not appropriately correspond to the expected costs; however, it is also a low credibility plan. CALPIRG Education Fund is concerned that the loss ratio may indicate excessive premiums.  This is supported by the fact that the Blue Shield’s documentation indicates a premium decrease for this product.  The actual premium change will be determined by Blue Cross’s decision about the impact of the plan’s credibility.

4. The proposed annual premium rate increases are over three times the medical care component of the CPI for 2012 of 3.2%. 

In the material submitted by Blue Shield, it is clear that the proposed annual premium rate increases for the 3rd and 4th quarters of 2013 significantly exceed the rate of medical cost inflation. We are concerned that Blue Shield has not sufficiently explored alternate cost reduction strategies prior to further increasing health insurance costs for consumers.

[1] Blue Shield of California Proposal to Increase Small Group policies, Effective 01 July, 2013, State Tracking Number: HAO-2013-0031. Accessed online May 2013 at:

[2] Accessed online at:

[3] Available online at:,P9_COMPANY_NAME,P9_REFERRING_PAGE_NUM:7327,Blue%20Shield%20of%20California%20Life%20%26amp%3B%20Health%20Insurance%20Company,4&cs=1907AD78D4E258918A041B24A8F815BBF

[4] Blue Shield of California Proposal to Increase Small Group policies, Effective 01 July, 2013, State Tracking Number: HAO-2013-0031. Accessed online May 2013 at:

[5] See note in subsequent submission dated 30 April 2013, p.2.

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