A national insurance expert today testified at a consumer hearing that Blue Cross Blue Shield of Michigan used flawed, inappropriate methods to determine proposed rate hikes at issue in a consumer challenge.

James Geyer, a Manchester, Conn., insurance consultant and former chief actuary for Aetna Inc., said Blue Cross' methods resulted in a substantial overstatement of its losses from its non-group policies purchased by individuals without workplace coverage. Though only a small part of current Blue Cross business, participation in these policies is growing as employers drop workplace health insurance benefits.

Of 12 non-group plans, five value plans with the highest copays are growing the most, Geyer said.

If Blue Cross had performed a more precise analysis of growth in the value plans the insurer would either break even or make $1.3 million, Geyer said, instead of incurring as much as $13 million in losses from that line of business.

Geyer also said he was "troubled by" assumptions factored in the rate hikes that Blue Cross would see expenses for this business grow by 10% a year, when they "should be 3% to 4% and no more than 5%."

Blue Cross attorneys had not cross-examined Geyer at the time of the noon recess in the hearing today. But in a statement to the Free Press, Blue Cross spokeswoman Helen Stojic said the company disagrees with Geyer's assessment.

The insurer's non-group policies "offer consumers want they want ... with the best access to doctors at the premium price that they find is more desirable. The fundamental problem is that the marketplace needs reform because it pushes consumers with medical conditions to ultimately end up at Blue Cross, making the cost paying for their medical care much higher than what for-profit carriers pay," Stojic said today.

Blue Cross earlier this year sought 24% increases, on average, for these non-group policies. Former insurance commissioner Linda Watters granted Blue Cross a 10% interim rate hike, which took effect June 1. The rate hikes affect some 19,000 people in seven Blue Cross non-group plans. They don't affect some 34,000 people in five other plans.

Blue Cross says the rate hikes are needed to offset growing losses in the non-group business, which totaled $52 million over 10 years.

Ron and Ghada Abraham of Livonia filed a challenge to the proposed rate hikes, saying Blue Cross should use part of its $2.8-billion surplus fund to offset rate hikes. Blue cross says it needs its surplus fund for emergencies. The fund only would cover 1 1/2 months of expenses, the company says.

The hearing before David Lick, administrative law judge named by Watters, may end Friday.

For the full article, see Patricia Anstett, "Insurance expert criticizes Blue Cross rate calculations; Health care provider is being scrutinized for proposed hikes", Detroit Free Press, December 12, 2007.