New Law Aims at Halting Some Rate Hikes by Insurers

Health Care

by Laurence Darmiento

It’s bad enough that health care premiums are rising sharply, but particularly vexing for business is seeing health plans raise rates in the middle of a contract.

State law allows such premium hikes as long as businesses are given 30 days notice. But a bill authored by Assemblywoman Jackie Goldberg, D-Los Angeles, and just signed into law by Gov. Gray Davis, would put a halt to the practice even though it includes a huge loophole.

The bill, prompted by a controversial decision last year by Signal Hill-based Universal Care to raise rates on a group of public employees, still would allow the practice as long as contracts specifically permit it.

“My first glance (of the bill) is that as long as we have the provision in the contract as we always do it’s business as usual,” said Jay Davis, executive vice president of Universal Care.

Davis says Universal raises rates only when the true costs of insuring a business is significantly out of line with projections, often because of new state coverage mandates.

Goldberg was on vacation in Hawaii last week and unavailable for comment, but a legislative aide maintained the bill still marked an advance since at least businesses would now be aware that contracted rates can change something that has not always been the case.

“If it’s in a contract, then they see it,” said aide Sophia Kwong.

Businesses also can negotiate contracts with health plan contracts that do not include any provision for a rate change.

Wellpoint Decision

Wellpoint Health Networks Inc. has given itself until Sept. 27 to decide whether to proceed with its planned purchase of Maryland-based CareFirst Inc.

The decision will come on the heels of a key report by a consultant hired by the Maryland insurance commissioner that concluded Wellpoint’s $1.3 billion bid for the nonprofit Blue Cross plan was inadequate.

The Blackstone Group said that a low-end fair value was $1.38 billion but that it might be as much as $2.25 billion, depending on how the financial analysis is conducted.

In a letter to Maryland Insurance Commissioner Steven B. Larsen, Thousand Oaks-based Wellpoint argued that the report did not properly compute the value of the non-profit because it failed to properly account for the taxes CareFirst would have to pay after the sale is complete. The letter stated that would drop the value of CareFirst to as little as $1.07 billion.

“The report has limitations to it,” said Wellpoint spokesman Ken Ferber.

Legislators and patient groups have opposed the deal, citing the size of the bid and CareFirst’s proposed conversion to for-profit status.

The deal would give Wellpoint 3.2 million members but must be approved by regulators in Maryland, Delaware and Washington D.C., where CareFirst does business. Because of its jurisdiction over the District of Columbia, Congress also must approve the sale.

Staff Reporter Laurence Darmiento can be reached at (323) 549-5225 ext. 237 or at

[email protected].