Blue Cross Blue Shield of New Mexico officials told a state insurance hearing officer Tuesday that the health insurer must raise premiums by 6.9 percent on 31,000 New Mexicans to help cover claims the company has paid out in recent years.
"Even with the rate increase, we will lose money," Kurt Shipley, a Blue Cross Blue Shield vice president, told Insurance Division hearing officer Aaron Ezekiel.
According to Shipley, the company lost $7.2 million in 2011 in the individual market -- where the company sells health insurance policies to individuals as opposed to offering group plans for employers looking to insure employees.
The proposed 6.9 percent rise in monthly premiums is somewhat smaller than the 9.9 percent hike the company initially sought last year. But for more than 25,000 of the 31,000 affected policyholders, a rate increase would represent the second in three years. Blue Cross Blue Shield won a rate hike in 2010 that boosted costs for each policyholder by 18 percent to 25 percent.
While the 6.9 percent increase was negotiated by the company and the state Insurance Division, it must pass muster with Ezekiel, the hearing officer.
Tuesday's hours-long hearing largely involved testimony from Blue Cross Blue Shield officials and an outside actuary, who analyzed the company's initial request to raise rates by 9.9 percent.
A separate April 14 hearing will take testimony from New Mexicans potentially affected by the proposed rate increase. That hearing will be held in Apodaca Hall at the PERA Building, where the Public Regulation Commission is headquartered.
Much of the testimony given Tuesday revolved around Blue Cross Blue Shield's financial health and the possible consequences if it doesn't win the rate increase.
Without it, "We'll probably have to take drastic action," Shipley said. "We may have to pull out of rural areas." Blue Cross Blue Shield is the only major health insurance carrier to sell policies to individuals in every part of the state, even rural areas, where the costs of offering health insurance are higher, Shipley added.
"New Mexico is a difficult state to do business in" because it is geographically large but with a small, spread-out population, Shipley said.
Assistant Attorney General Brian Harris asked why Blue Cross Blue Shield couldn't tap into its parent company's surplus to cushion its losses.
The company is a division of Illinois-based Health Care Services Corp., which recorded an $8.9 billion surplus in 2011, according to its financial filings. Health Care Services Corp., which operates subsidiaries in Texas, Oklahoma and Illinois, insures 13 million Americans overall, with about 300,000 of its members coming from New Mexico.
Kevin Carr, Blue Cross Blue Shield's senior actuary, told Harris that as an insurance company, Health Care Services Corp. had to keep a healthy reserve in case of potentially catastrophic events such as a pandemic.
"If there is a pandemic, that could wipe out the surplus quickly," Carr said.
While selling health insurance policies to individuals makes up roughly 10 percent of Blue Cross Blue Shield's business in New Mexico, the other 90 percent -- selling group health plans to employers wanting to cover their employees -- hasn't been able to offset the losses, company officials said Tuesday.
