Insurance Litigation & Regulatory Law Blog : California Insurance Lawyer & Attorney : Barger & Wolen Law Firm : CA Insurance & Bad Faith Litigation

California Department of Insurance Commissioner, Steve Poizner, issued a press release today indicating that the Department has retained an outside actuarial firm to analyze regulatory rate change filings made with the Department by the four major health insurers in the individual market – Anthem Blue Cross, Aetna, Health Net, and Blue Shield of California. 

The purpose of the independent actuarial analysis is to ensure that health insurers, in raising their premium rates, comply with state law mandating that 70 cents of every dollar collected in health insurance premiums are to be spent on medical benefits.

In February 2010, after the Department received Anthem Blue Cross’ proposed rate change filing indicating that it was seeking to increase individual rates by up to 39%, Commissioner Poizner took the unprecedented step of requesting that an outside actuarial firm analyze the proposed rate increase to ensure that Anthem Blue Cross’ actuarial assumptions were justified and that it complied with the 70 cents on the dollar state law mandate. 

The Commissioner indicated at that time in a letter to Anthem’s parent, Wellpoint, Inc., that

[i]f the independent actuary concludes that Anthem’s assumptions are unjustified and that Anthem will pay out less than 70 cents of the premium dollar for benefits, I will take immediate action to stop Anthem from charging the increased rates to California consumers.”

On April 28, 2010, Axene Health Partners, LLC (“Axene”), the actuarial firm retained by the Department to analyze Anthem’s rate change filing, issued a report containing its findings. In short, Axene found that Anthem’s actuarial calculations and methodology were flawed which resulted in inflated total lifetime loss ratios. This, in turn, resulted in a finding by the Department that Anthem had attempted to charge consumers 50% more than state law allows. In response to these findings, Anthem withdrew its rate change filing.

The press release issued today by the Department indicates that, in light of Axene’s findings with respect to Anthem’s rate change filing, the Department will require that, in addition to the actuarial review conducted internally by the Department, the four major health insurers’ rate change filings be scrutinized by an outside actuarial firm to ensure accuracy and compliance with state law.  

Currently, Axene is reviewing rate change filings made by Aetna and Blue Shield, and will no doubt be reviewing Anthem’s anticipated rate change re-filing, as well as any future rate change filings made by Health Net.

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With the backdrop of the raging battle over healthcare reform, a Los Angeles jury rendered on Monday a verdict in favor of an insured against Anthem Blue Cross arising out of the health insurer’s refusal to provide coverage for an out-of-state liver transplant. The case, Ephram Nehme v. Wellpoint, Inc.; Blue Cross of California d/b/a/ Anthem Blue Cross, initially filed on August 14, 2008, has been closely followed in the legal and health insurance communities.

As reported in the Los Angeles Times, the jury found, by a vote of 10-2, that Anthem Blue Cross had breached its contract by refusing to pay for the cost of the out-of-state transplant operation, and by a vote of 9-3 that Anthem Blue Cross had acted in bad faith. Anthem Blue Cross stated in the article that its contract provides that transplants must be preformed in California and that it had approved Nehme for a transplant at UCLA Medical Center once his name came up on the UCLA waiting list. The same article stated that the jury awarded Nehme $206,000 for the cost of the operation, and that he would also be able to recoup his legal fees. (Under California law, pursuant to the decision in Brandt v. Superior Court, upon a finding that an insurer has acted in bad faith, the insured is able to seek to recover only those attorney’s fees incurred to obtain the contract benefits, but not the fees incurred to show bad faith.) The jury did not, however, award any punitive damages against Anthem Blue Cross.

The trial court proceedings are not yet concluded, with further post-trial motions to be filed, and it is unknown whether Anthem Blue Cross will appeal the jury’s verdict.

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In Nieto v. Blue Shield of California Life & Health Insurance Company (issued January 19, 2010), the California Court of Appeal found that an insurer properly rescinded an insured’s individual health insurance policy based on medical history misrepresentations contained in the application submitted to the insurer. The court also concluded that the insurer had no statutory duty to physically attach the application to the policy or to conduct further inquiries beyond the application during the underwriting process to ascertain the truthfulness of the insured’s representations before it issued the policy. The Nieto decision is addressed in Barger & Wolen’s Life, Health and Disability Insurance Law blog.

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