Blue Shield of California faces class-action lawsuit over incorrect rebates

July 14, 2016

 

 

Members who have health coverage through Blue Shield of California are suing the insurer, alleging the company owes $35 million in additional rebates because it included faulty payments within its medical-loss ratio a few years ago.

Two Blue Shield members, Becky Ebenkamp and Rebecca Morris, filed the class-action lawsuit on behalf of more than 446,000 other people who bought an individual Blue Shield plan in 2014.

One of the lead attorneys for the plaintiffs is Jay Angoff, a former Missouri insurance commissioner and former director of the CMS' Center for Consumer Information and Insurance Oversight. While at CCIIO, one of Angoff's primary duties was enforcing the Affordable Care Act's medical-loss ratio rule, which requires insurance companies selling in the individual market to spend at least 80% of collected premiums on medical care or “quality improvement activities.”

Calls to Angoff's current law practice, Mehri & Skalet, and the other firm involved with the lawsuit, Hadsell Stormer & Renick, were not returned Thursday.

In a statement, Blue Shield of California confirmed it received the lawsuit and said, “We believe that the allegations are misinformed and incorrect, and that we are in compliance with all the rules regarding medical-loss ratios.”

The ACA instituted the MLRs as a way to keep costs down and ensure health insurers were spending most of their revenue on patient care instead of profits, marketing and executive compensation. Insurers that don't meet the ratio's thresholds are required by law to pay back the difference to their members in the form of rebates.

In the first three years of the ACA, insurers paid out more than $1.9 billion in rebates to consumers for not hitting the MLR, a provision that has been unpopular among insurers.

In 2014, Blue Shield admitted it incorrectly paid about $44.6 million in medical claims, the lawsuit reads. Plaintiffs allege the insurer still included that erroneous amount within its MLR calculations even though it should've been excluded—essentially classifying administrative mistakes as medical spending. That resulted in Blue Shield shortchanging consumer rebates by about $35 million, after adjusting the calculations, according to the lawsuit.

“It seems to me that what Blue Shield has done absolutely violates the letter and the intent of the MLR provision,” said Michael Johnson, Blue Shield's former director of public policy. Johnson is unaffiliated with the lawsuit, but he has tracked Blue Shield's rate filings and alerted lawyers to look into the issue. He left Blue Shield in 2015 and has openly criticized the not-for-profit insurer for acting too much like its investor-owned peers.

Blue Shield has since filed a lawsuit against Johnson, alleging he disclosed confidential information, and has dismissed his protests.

Although Blue Shield said the MLR lawsuit was “misinformed,” Johnson believes it has strong merits based on the fact a former CMS official who managed the oversight of premium ratios has embraced the case's arguments.

“They wouldn't have taken this case if they didn't think there was a good prospect of recovery for consumers,” Johnson said.

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