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Axene: California Blue Shield Rates Look Good to Me

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An independent actuary says individual health insurance rate increases recently announced by Blue Shield of California appeared to be based on reasonable assumptions and straightforward pricing methods.

California Blue Shield, San Francisco, asked for the independent rate reviews by David Axene of Axene Health Partners L.L.C., Winchester, Calif., in January, after California Department of Insurance officials asked large health insurers in the state to submit rate increases to independent actuarial reviews.

California Blue Shield said it would make refunds to policyholders if Axene – who has had contracts to review rate filings for the California department — found that its rates were unsound.

“It is our opinion that the [California Blue Shield] proposed rates are reasonable, not excessive, and meet the requirements of the California Department of Insurance,” Axene writes in a letter summarizing his findings. “It is our opinion that these rates will generate a small positive margin … when investment income is included and as the new commission schedule comes into full effect.”

Axene says California Blue Shield seems to be using the same

assumptions his firm uses in its own pricing models.

California Blue Shield provides or administers health coverage for about 3.3 million California residents. It is a separate company from Blue Cross of California. Blue Cross of California is a unit of WellPoint Inc., Indianapolis (NYSE:WLP).

California requires health carriers to submit individual health insurance rate change notices for compliance reviews, and the new Patient Protection and Affordable Care Act (PPACA), part of the federal Affordable Care Act package, now requires individual health insurers to spend at least 80% of revenue on health care and quality improvement efforts.

The California Blue Shield rate increases appear to comply with the federal rules as well as the state rules, Axene says.

California regulators began calling for extra scrutiny of increases in 2010, when some carriers asked for several increases during the course of the year.

California Blue Shield has been raising individual health rates at an average annual rate of 15%, and increases for some enrollees have been higher than the average, the company says.