The proposed sale of Blue Cross and Blue Shield of Kansas to a for-profit health insurer would result in significant premium increases, state insurance regulators said Monday.
Indianapolis-based Anthem, which has 8 million policyholders in eight states, has proposed buying Blue Cross and Blue Shield of Kansas the state's largest insurer that covers about 700,000 people for about $190 million.
Karen Eager, an attorney in the law office of Theodore Lickteig in Lawrence, is representing several groups opposed to the purchase of Kansas Blue Cross and Blue Shield by Anthem. Eager prepared legal briefs Monday that will be filed with the Kansas insurance commissioner.
To take effect, the proposal must be approved by policyholders and Kansas Insurance Commissioner Kathleen Sebelius.
Officials with both companies say the sale is needed to improve efficiency and better serve Kansas policyholders.
But a Kansas Insurance Department team analyzing the deal said it would result in higher premiums.
The team, aided by expert consultants, did not make a recommendation about whether the sale should go through. In testimony prepared for Sebelius, the regulators said the commissioner would be justified to either accept or reject the deal.
"These additional rate increases are likely to be of sufficient magnitude to justify a finding that they outweigh any benefits expected from the (proposed sale)," said the team, led by Kathy Greenlee of Lawrence, who serves as general counsel to the insurance department.
The team said that Sebelius would be within her rights to conclude that the sale would be unfair to policyholders "and instead may be hazardous or prejudicial to the insurance-buying public."
Sebelius is expected to make a decision on the proposed sale within 30 days of a Jan. 7-9 administrative hearing in Topeka.
Anthem and Blue Cross of Kansas officials disagreed that the sale would result in higher premiums and said that aside from that issue, the regulators and expert consultants agreed that Anthem had a solid record.
"We feel vindicated as far as our proposed affiliation," said John Knack, chief executive officer of Blue Cross.
Consultants hired by the Insurance Department said that if Anthem is allowed to buy Blue Cross of Kansas, premium rates would increase "6 percent to 7 percent above the levels that might be expected in the absence of the Anthem purchase, with broad variation by market segment."
The PricewaterhouseCoopers LLP consultants said Anthem would have to increase the rates to achieve standard underwriting gains for a for-profit insurer in the 2 percent to 3 percent range.
But Knack noted the consultants reported the increases would affect small-group business policies, not Medicare supplemental nor large-group policies. And, he said, the increases needed by Anthem for the small-group policies would be the same that Blue Cross of Kansas would seek because that line of insurance is losing money.
David Frick, chief administration officer with Anthem, disagreed that Anthem's premiums would be higher, saying that the company would have to be competitively priced or policyholders would seek other insurers.
Under the proposed sale, Blue Cross of Kansas policyholders would have to vote to give up their ownership of the company in exchange for a payout that could be worth more than $300 million.
If policyholders approve the change, then it is up to Sebelius to decide whether the deal should go through.
Other groups Monday filed testimony opposing the acquisition, including the Kansas Association for the Medically Underserved and the Kansas State Nurses Assn.
Karen Eager, a Lawrence attorney representing the groups, said she feared Anthem would increase premiums for small groups and individual policies and try to eliminate caps on deductibles.
Eager also said Kansas policyholders would be subsidizing the higher health-care costs of Anthem policyholders in other states.
"We are going to be shouldering an unfair burden. It would have a negative impact on us," she said.
The Kansas Medical Society and Kansas Hospital Assn. have also expressed concerns with the buyout. Gene Meyer, chief executive of Lawrence Memorial Hospital, has said he opposes the deal.
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