A California health insurer that wants to close a block of individual policies must pool it with enough open policies to hold down the average claim level and keep the rates for all policies in the pool reasonably low, state insurance regulators say.
The California Department of Insurance talks about its views on closing blocks of health insurance in an announcement of its decision to reject efforts by Blue Shield Life & Health Company to close all but 3 of 28 individual health policies regulated by the insurance department, according to Consumer Watchdog, Santa Monica, Calif., which has filed a complaint against Blue Shield in a state court in San Francisco.
California Blue Shield also is applying for permission to increase the number of individual managed care policies it offers, which would be regulated by the California Department of Managed Health Care, to 20, from 11.
The California insurance department says it originally disapproved the California Blue Shield block closure notice March 3 and asked for more information.
California Blue Shield has provided more information, but the department still believes that the closure fails to comply with California insurance laws, department officials say.
Blue Shield Life is a unit of Blue Shield of California, San Francisco.
California Blue Shield has no connection with the Blue Cross company that serves California. Blue Cross of California is a unit of WellPoint Inc., Indianapolis (NYSE:WLP).
The plaintiffs in the Consumer Watchdog case, Martin et al. vs. California Physicians’ Service et al., contend that the only individual preferred provider organization (PPO) plan still regulated by the insurance department would be a high-deductible PPO plan that is not comparable to the plans that are closing.
The Consumer Watchdog plaintiffs say in their complaint that a California “Death Spiral Statute” seeks to prevent insurers from isolating policyholders in small, closed blocks that are likely to experience an ever-escalating cycle of rising claims costs and sharp premium increases, with only sick enrollees who have no ability to qualify for other commercial coverage holding onto their policies.
The California Death Spiral Statute requires an insurer to combine the experience of closed blocks with the experience of “multiple appropriate open blocks,” to keep the risk pool large enough to help keep rates affordable, the plaintiffs say.