Cross-Examining Blue Cross



  • Department of Managed Health Care scrutinizes Anthem-Wellpoint merger agreement
  • Consumers, doctors, and health advocates raise issues about Blue Cross’ practices
  • Department will weigh in with final ruling within three months

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A standing room-only crowd crammed into a downtown Los Angeles hearing room on Tuesday to offer more than six hours of testimony about the company and hear Blue Cross of California respond to regulators’ questions on whether the company violated any promises the company made when parent Wellpoint Health Systems, Inc. merged with Anthem Inc.

Protestors, including the “Sick of Blue Cross man,” demonstrated outside of the Junipero Serra Building before the hearing to call attention to the droves of consumers who have responded to the It’s OUR Healthcare! Campaign’s website.

Blue Cross’ transfer of $950 million to the Indianapolis-based parent company Wellpoint Inc. earlier this year triggered the review of the company’s Undertakings, agreed to three years ago. The Undertakings were intended to protect consumers against the costs associated with merging the insurance giants (including hefty executive salaries and buyouts), meaning that premiums did not increase to cover the merger or that the company spent less money to health care for consumers, that quality of care did not suffer, and the Californians benefited overall from the merger. Regulators hammered on a number of points, including:

  • Why was Blue Cross’ dividend Wellpoint this year so much higher than in 2005 and 2006?
  • Why are so many providers threatening to leave Blue Cross of California’s network?
  • Why is the company aggressively marketing high-deductible plans with fewer benefits, which ask consumers to pay for a larger share of their care, while sending so many dollars out of state?


After a presentation by the Department of Managed Health Care raising questions and reporting on the substance of complaints by consumers and providers, Blue Cross’ California President Brian Sassi first gave a presentation aimed at defending the company’s practices in the three years since the merger.

In a slide that described “What is the value of the merger,’’ Sassi described that Blue Cross has “developed products and services to grow our membership,’’ which now stands at 8.3 million Californians. Those “innovative and cutting edge’’ products Sassi described have attracted 895,000 subscribers in the individual market – the largest share of individual consumers of any other health plan in the state. “We’re working hard to design products for individuals to provide the services they need, without driving up health care costs,” Sassi said.

Blue Cross’ Sassi also defended the company’s $950 million check that was sent to Wellpoint in May, saying that the money was accumulated profits from years “prior’’ to the merger, and because the merger agreement limited the amount of dividends that could be sent to Wellpoint, the company waited until the merger agreement expired. Sassi also boasted that the company spent $11 billion on claims last year and a network of 53,000 physicians and 380 hospitals.

The presentation, however, caused Braulio Montesino, the department’s legal and policy unit chief, to question whether Blue Cross was combining numbers from both their products regulated by Department of Managed Health Care and Department of Insurance. The Department of Managed Health Care, will in a few months, make a final ruling on whether Blue Cross properly followed its merger agreement.


Regulators heard testimony from dozens of members of the public. Physicians talked about the gradual deterioration of Blue Cross’ reimbursement rates – which in many cases are now lower than Medicare rates, which allow providers to break even. While providers acknowledged a tightening of the belt among all insurers, they said Blue Cross was the worst offender.

“The fact is that Blue Cross has crossed through the line,’’ said Ron Nagel, a pediatrician who has been a Blue Cross provider for 20 years. “What message is Blue Cross sending me when the new vaccine reimbursements are barely 10% above my cost. What message is Blue Cross sending me when they reimburse $58 to see a newborn in a hospital and $28 the following day? This is insulting.”

Janet Stephens, an Anaheim nurse who spoke at a morning press conference, also told regulators about her struggles with Blue Cross. When she first subscribed, her premiums were $252 a month. Now her premiums are $589 a month for a plan with a $1,500 deductible and a separate $500 prescription drug deductible.

Stephens has cashed in on her home equity and sold household items to help pay off her outstanding $4,000 bill at the pharmacy – whittled down from $8,000. Her co-pays have increased ten-fold.“I’m facing the dire medical and financial consequences as (Blue Cross) seeks to pay for its lucrative merger,’’ she told the Department of Managed Health Care.

Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights questioned both the amount of money that Blue Cross sent out of state and questioned the company’s decisions to retroactively rescind coverage for consumers who made expensive claims.

Anthony Wright of Health Access California questioned statements by Sassi, and challenged that the “innovative’’ product design Blue Cross talked about meant plans with low premiums but skinny benefits. Advocates oppose these plans because they segment the market, driving healthier consumers to lower-priced plans, while driving up the cost of the more comprehensive plans that are used by sicker subscribers.

Advocates also dislike these low-premium, low-benefit plans, because often, consumers believe they are buying coverage, only to find that their coverage scarcely covers their health care needs when they need it. Health Access also advocated that many of the undertakings be extended, and that money be returned to California.

Resoundingly, though, while many who testified spoke of magnitude of Blue Cross’ anti-consumer behavior, the company was not alone. Other insurers were also guilty – to a lesser degree – of denying care, denying claims for reimbursement, promoting low-premium, low-benefit plans and other unseemly practices.

Blue Cross, however, did seem to organize a number of consumers and insurance brokers to testify on their behalf. Consumers in rural counties in the Central Valley commented on how Blue Cross agreed to provide coverage and cultural/linguistic access to their communities when other plans did not. Insurance brokers talked about the popularity of Blue Cross plans and how they have stretched to meet the “needs’’ of consumers.

Regulatory hearings typically last two to three hours at most. Tuesday’s hearing, which was scheduled to run five hours stretched to more than six hours with no breaks in testimony. A retired Wellpoint executive in the audience commented on how he had never seen as much interest from the public on a regulatory hearing.

Read coverage of the hearing in the LA Times here.

Health Access California promotes quality, affordable health care for all Californians.

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