Blue Cross/WellPoint Profit Transfers in California Should Spur National Investigation in Congress, Says Consumer Watchdog

Group Urges House Subcommittee to Expand Hearings, Investigate Possible Insurer 'Shell Games' in Justifying Massive Premium Increases

WASHINGTON, Feb. 24 /PRNewswire-USNewswire/ -- The House subcommittee grilling Blue Cross chief executive Angela Braly today should expand its financial examination of Blue Cross and its parent, WellPoint, to include billions of dollars in dividend transfers and no-bid "service contracts" with affiliate companies, said Consumer Watchdog. Such financial transfers may have been used in California to artificially justify this year's 39% premium increases, said the nonprofit watchdog organization.

Blue Cross of California has transferred $4.8 billion in dividends to its parent company, WellPoint Inc., of Indianapolis, since the company merged in 2004 with Anthem, the former parent of BC California, according to Consumer Watchdog's examination of data reported by Blue Cross to state regulators. The insurer maintains a surplus of $1 billion more than the law requires for financial safety, and has spent billions on other WellPoint-affiliated companies for service contracts, which Consumer Watchdog likened to an elected official contracting with himself for office supplies.

To see chart of financial transfers between Blue Cross companies in California and parent WellPoint, go to http://www.consumerwatchdog.org/images/WellPointTransfers.gif, or see below.

Consumer Watchdog has accused Blue Cross of California of illegal transfers of profit to WellPoint in violation of a 2004 agreement that California policyholders would not be financially harmed by the 2004 merger of Anthem and WellPoint. The group has urged state Insurance Commissioner Steve Poizner to use the intracompany transfers as grounds for barring premium increases in the state.

"If Blue Cross in one state shovels billions of dollars to a parent company and its affiliates in another state, then pleads a financial need for 39% premium increases, lawmakers and regulators should show the company the door," said Jerry Flanagan, health policy director of Consumer Watchdog. "If insurance conglomerates are playing a shell game with profits in order to make even higher profits, the public has every right to be outraged and Congress has the obligation to put a stop to it."

WellPoint reported a 2009 net profit of $4.7 billion, and the five largest insurers together posted $12.2 billion in net profits, even as the major insurers lost millions of customers to job loss and employers who dropped or cut insurance coverage.

Consumer Watchdog said that Congress and other states should be examining the finances of state-licensed insurers and their corporate parents for unjustified profit transfers and suspect contracting.

(1) Annual Financial Reporting Form, Anthem Blue Cross, December 31, 2008, "CashFlow" tab [hereinafter ABCC Financial].

(2) ABCC Financial, TNE(1), line 21.

(3) Annual Statement, Anthem Blue Cross Life & Health, For the Year Ended, December 31, 2008, p. 22 [hereinafter ABC L&H Financial].

(4) ABCC Financial, Schedule K.

(5) Id.

(6) California Department of Insurance, Report of Examination of the Blue Cross Life and Health Insurance Company as of December 31, 2006, page 2.

(7) Id.

(8) ABC L&H Financial, 2007, page 19.10.

(9) Id.

(10) Id.

(11) As of 2008, this information is not available.  The ABC Financial stated on Schedule K: "Proprietary information not available on website."

(12) Id.

(13) Based on 2008 projections.  Anthem Blue Cross Life and Health Insurance Company, Annual Statement For the Year Ended December 31, 2009, page 19.11.

Consumer Watchdog is a nonpartisan consumer advocacy organization with offices in Washington, D.C. and Santa Monica, CA. Find us on the web at: http://www.ConsumerWatchdog.org

SOURCE Consumer Watchdog