UPDATE: Blue Shield Calif: Won't Raise '11 Individual Rates

Nonprofit health insurer Blue Shield of California has withdrawn its rate filing with the state's insurance department and said Wednesday it won't increase rates to any individual or family-plan member for the rest of the year.

The insurer, which has 340,000 individual- and family-plan members in the state, had been criticized by California's insurance commissioner early this year for planning "excessive" premium increases on individual policies and, in response, submitted its rates to an independent review.

"By agreeing to not raise rates this year, we are helping to make coverage more affordable for our members during tough economic times. It's a financial risk for us, but a risk that's worth taking," Chairman and Chief Executive Bruce Bodaken said in a statement.

The organization lost $27 million on individual coverage last year and had expected additional losses in 2011 even with the now-withdrawn increases, the insurer said, adding that individual policy holders will save $35 million to $40 million this year as a result of its decision.

Blue Shield had filed late last year for new individual rates, which were to have been effective March 1. New Insurance Commissioner Dave Jones in January asked Blue Shield and the three largest for-profit U.S. health insurers--WellPoint Inc. (WLP), UnitedHealth Group Inc. (UNH) and Aetna Inc. (AET)--to delay their new rates in the state by at least 60 days. The insurers did so, although Blue Shield didn't initially agree.

Jones had said some Blue Shield consumers would see a 59% rate increase under the filing.

An independent actuarial review found the Blue Shield rates were appropriate, the insurer said, but they won't take effect as a result of the filing withdrawal.

The insurance department continues to review the filings of the three for-profit insurers that delayed their rate increases.

"My hope is that all three of the other insurers will look at what Blue Shield did and hopefully follow suit," Jones told Dow Jones Newswires, noting he doesn't have authority to require them to do so. Jones said he wasn't prepared to say whether the insurers' proposed increases were reasonable. "I will say, though, that they are certainly unsustainable for consumers and business in the state of California."

WellPoint had no update to the status of its California Anthem rates, which are postponed to comply with Jones' request for time to review them, a spokeswoman said. They were originally set to go into effect Jan. 1 and April 1.

A spokesman for UnitedHealth's PacifiCare said the insurer is working with the department on its proposal, and is "confident that once the commissioner's office has had an opportunity to review the additional information, they will agree that the modest premium increases we identified are reasonable in relation to the benefits provided to our customers."

Aetna's new individual rates are expected to go into effect around June 1 because of the delay, a spokesman said.

"I am pleased that Blue Shield announced this morning that it has decided not to move forward with the third of its three rate increases in less than a year," Jones said in a statement. "For some Blue Shield policyholders, the total of these three rate increases was as much as 87%," with the third averaging 6.5%, he said.

Blue Shield's decision, he said, confirms the need to give the insurance commissioner authority to reject excessive rate hikes, which the office-holder currently cannot do.

Deutsche Bank (DB, DBK.XE) analyst Scott Fidel said California has "one of the worst political and regulatory climates for commercial health insurers in the U.S.," and noted that the 2010 elections installed a new activist insurance commissioner.

"Since his election, (Jones) has essentially opposed all rate increases submitted by health insurers in the individual market," including Blue Shield's now withdrawn hike, even though the insurer was losing money and an outside actuary deemed the rate hike reasonable and not excessive, Fidel said.

The effect on publicly traded health insurers should be modest, because they're already either losing money or generating very modest returns in California's individual market, Fidel said. Blue Shield will likely gain market share because it withdrew its rate increase, though the new members probably will be those now generating losses for competitors, he said.

-By Dinah Wisenberg Brin, Dow Jones Newswires, 215-982-5582; dinah.brin@dowjones.com

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