In May, Peter Lee, executive director of Covered California, announced the plans and prices that will be offered by private insurers. (AP Photo/Rich Pedroncelli)

Just as the California Health Benefit Exchange is gearing up for the January 2014 start date, the California insurance commissioner is recommending that it exclude Anthem Blue Cross and also Blue Cross of California from participating in a crucial health marketplace exchange.

State Insurance Commissioner Dave Jones announced late last week he is recommending the marketplace or exchange, called Covered California, bar Anthem Blue Cross Life and Health Insurance Co. (Anthem) and Anthem Blue Cross of California from participating in the Small Business Health Options Program Exchange, which is set to begin enrollment of new health insurance coverage in October.

This stinging recommendation comes after California Insurance Department actuaries determined that Anthem’s July 1, 2013, 7.2 percent average quarterly rate increase on small employers was unreasonable. This is the third Anthem small employer rate increase the California Department of Insurance (CDI) has found to be unreasonable in 2013.

However, it also points to continued negotiations and politics in the state — in contrast to his comments on Anthem. Jones said in February that he “appreciate[s]” Anthem’s willingness to work with the CDI on health insurance rates when Anthem agreed to lower Feb. 1 rate increase for individual and family health insurance products.

The 12-month cumulative increase for these Anthem customers is 17.6 percent. Had Anthem reduced its rate increase to a reasonable level, it would have resulted in $37 million savings for policyholders over a 12-month period.

“Anthem has engaged in a pattern of excessive and unjustifiable rate increases for its small employer customers and therefore they should not be permitted to participate in California’s small employer health Exchange,” Jones stated June 13.

At the same time, Aetna announced today it is leaving the individual market in California

A section the Patient Protection and Affordable Care Act (PPACA) requires state insurance commissioners to make recommendations to the exchange about whether particular health insurers should be excluded based on a pattern or practice of excessive or unjustified premium increases.

Jones also is recommending that Anthem’s sister company, Blue Cross of California, also not be permitted to participate in the Small Business Health Options Program Exchange because the two companies share corporate officers, are ultimately owned by the same parent company, and have moved policyholders between the two sister companies.

Anthem explained that the rate increases in the small group market are not unique to Anthem and represent an economic reality faced throughout the entire industry as health care costs continue to escalate faster than California’s economy as a whole. 

In 2012, Anthem’s profit was only about 1 percent , while a report commissioned by the state found that premiums will increase 9 percent over the next year due to rising medical usage and medical costs, Anthem pointed out.

Anthem is already part of Covered California in the individual market.

“Anthem has been selected by Covered California as one of only two statewide providers to provide health benefits to individuals and families on the exchange. Based on the rates recently released by Covered California, Anthem offered either the most affordable or second most affordable plans in 14 out of the 19 regions at the silver level. We look forward to extending our partnership with Covered California so that we can provide small businesses access to quality providers at highly competitive rates,” said Darrel Ng, spokesperson for Anthem Blue Cross.

A response from Covered California was pending at presstime.

Anthem noted that Jones’ recommendation is not binding. Covered California determines who will participate in California’s exchange. The products sold by Anthem on the exchange are regulated by the California Department of Managed Health Care, not the CDI. 

PPACA requires the U.S. Department of Health and Human Services to set up exchanges for individuals and small groups by Oct. 1.