Blue Cross Blue Shield New Mexico may get one last rate hike just under the wire, before new state health insurance transparency rules take effect.

New Mexico Public Regulation Commission Insurance Division hearing officer Aaron Ezekiel concluded April 20 that since Blue Cross' latest rate hike, proposed last year, meets the old requirements of state law, it "must be approved."

If Insurance Division Superintendent John Franchini signs off on the increase, more than 30,000 Blue Cross policyholders who buy their own health insurance will pay 6.9 percent more for that coverage starting June 1.
That would bring Albuquerque policyholder Sonia Shad Goldstein's monthly premiums to $809 for herself and her husband.

"That's more than my mortgage," she told Ezekiel at an April 14 public hearing, her voice faltering.  Goldstein, 60, is self-employed. "My rates went up 25 percent last year and 20 percent the year before that," she says. "Now I have a $1,000 deductible and no mental health coverage. I imagine myself, a 60-year-old woman without health insurance, and it scares the bejesus out of me."

As Goldstein notes, the newest increase would come on the heels of a controversial 2010 rate hike. It puts health insurance beyond the reach of policyholders who are already struggling, but find themselves trapped because of age or health problems that have emerged since they first signed up for Blue Cross policies.

"I'm paying $10,000 a year in medical expenses, and our income is dwindling while our health insurance costs and medical costs climb," Albuquerque policyholder Fran Hardy says. "We're paying ridiculous premiums, but my doctor has to fight with [Blue Cross] all the time and isn't always able to get the medication she feels I need. They're trying to ram through as many increases as they can before the new law kicks in."

The division has approved annual, double-digit Blue Cross rate hikes since 2004, records show, in response to the company’s repeated claims that it is losing money in New Mexico.

"We're trapped in this cycle where Blue Cross asserts losses, and the health insurance division agrees, and it results in a rate increase," Assistant Attorney General Brian Harris says.

But now, policyholders are urging the PRC to reject Blue Cross' rate hike request and force the company to refile under new rules that went into effect in January. These rules allow PRC staff to consider a company's finances, cash reserves and executive pay when deciding whether to approve a rate hike—but since Blue Cross filed its request in August 2011, the new rules don't apply. Still, those data call into question Blue Cross' claims of poverty.

Last year, Blue Cross parent company Health Care Service Corporation reported a net income of $1.2 billion, up 10 percent from 2010, and has an estimated $8.9 billion in cash reserves—about six times more than New Mexico requires to ensure corporate solvency. Company officials say they need the reserves in case of an influenza pandemic.

"That sounds more like a scare tactic than a legitimate concern," Harris says. "The other figure they cite is that the $8.9 billion comes to one $680 ambulance ride for each of its 13 million members. That's just ludicrous. You're not going to have 13 million people in an ambulance at once. Those are not helpful or relevant examples."

Executive pay at both Blue Cross and HCSC also skyrocketed. Corporate filings obtained by SFR show that the top 10 HCSC executives received $41.7 million in salaries and bonuses in 2011, up from $25 million in 2010—a 65 percent increase that well exceeds the national 14-percent average jump in top executives' compensation.

Former Blue Cross Blue Shield New Mexico president Elizabeth West-Watrin's take jumped from $1.2 million in 2010 to $2 million in 2011—a 75 percent increase. HCSC CEO Patricia Hemingway Hall's compensation jumped from $8 million to nearly $13 million in 2011, records show.

When HCSC bought Blue Cross Blue Shield New Mexico in 2000, it assured state regulators that its cash reserves would make Blue Cross economically viable. But between 2004 and 2011, Blue Cross has cried poor—and the PRC has approved double-digit rate hikes every year except 2010, when a policyholder backlash delayed approval until 2011.

Company officials say Blue Cross lost $7.2 million in New Mexico's individual market last year, and, to maintain solvency, HCSC is subsidizing New Mexico operations from its cash reserves. But those reserves can't be used to forestall needed rate hikes, they claim.

If the rate hike is denied, Blue Cross officials warn they may pull out of rural New Mexico markets—including communities in which no other individual-market insurers operate. That would leave self-employed residents unable to purchase health insurance, despite the federal Affordable Care Act requirement that all adults be insured by 2014.

But many observers harbor doubts about Blue Cross' vulnerability.

Recent losses have been "unclear and ambiguous," Harris tells SFR. The company initially claimed to have lost more than $10 million, but unspecified "further accounting" brought that estimated loss down to the $7.2 million figure, he notes.

And Consumers Union attorney Sondra Roberto says that using HCSC's reserves for one thing (to subsidize operations) but not another (to alleviate pressure on consumers by limiting its rate hike requests) isn't kosher.

"HCSC can't have it both ways, saying, 'On the one hand, this surplus is available to New Mexicans to satisfy solvency protection laws, but it's not available when it comes to keeping rates low because that would be a subsidy from other states,'" Roberts says.

In 2007, Dr. James Rohack, then a member of the American Medical Association's Board of Trustees, alleged that HCSC was increasing rates in Texas counties where it controlled the market to allow lower premiums in areas where it faced competition from other insurers—and that HCSC charged "far higher premiums" to patients and paid lower rates to doctors in New Mexico in order to subsidize key competitive markets like Illinois and Texas.  (Regulators did not investigate the allegation.)

Roberto acknowledges that insurers should have some cushion against unexpected events.

"However, at a certain point, some insurers are just way beyond a reasonable cushion," she says. "And at $9 billion, HCSC is at that point."

And while HCSC is a mutual reserve company, she says—meaning policyholders should share in its profits—Albuquerque policyholder Vance Ley says the opposite is happening.

"HCSC isn't under pressure to pay dividends to stockholders," Ley says. "It's unreasonable to expect New Mexico policyholders to subsidize their [executives'] extravagant pay."

He and others urged the division to reject the proposed rate hike so that Blue Cross would have to refile under the new financial transparency rules.

"It's really unfortunate that Blue Cross Blue Shield New Mexico tried to implement this increase before the new law with greater consumer protections went into effect," Roberto agrees.

Although the hearing officer ruled that the PRC must approve the increase, Franchini has the authority to override that conclusion.

"He has discretion," Harris says. "He doesn't have to accept the hearing examiner's conclusions."
Franchini's decision is expected by June 1.

Editor's note: A previous version of this story misspelled Sondra Roberto's name as "Roberts"; this error has been corrected.