COMPLAINT AGAINST BLUE SHIELD CHARGES CARRIER WITH FEDERAL AND STATE LAW VIOLATIONS

Small Business Is Big Loser With Blue Shield’s Restrictions

(San Francisco, CA) – 23 March 2010—The law firm of Roxborough, Pomerance, Nye and Adreani, LLP (RPNA) filed a complaint today with the California Department of Insurance (DOI) against Blue Shield of California for unlawfully obstructing employer access to lower cost health insurance, citing numerous violations of state insurance laws as well as the federal tax code.

"The allegations leveled against Blue Shield -- that they are prohibiting small businesses from using employer-funded health reimbursement arrangements to provide health insurance to their employees-- are very troubling,” says Assemblyman Dave Jones, Chairperson, Assembly Health Committee. “Limiting California's small businesses from taking advantage of employer-funded tax programs to provide healthcare to employees is simply wrong."

The complaint further charges Blue Shield with wrongfully terminating its broker agreement with Brent Anderson and forcing one of his clients, the Carpinteria Summerland Fire Protection District, to change its health plan, costing the district an additional $150,000 a year.

“Blue Shield’s actions have effectively forced us to use dwindling taxpayer dollars for this unnecessary increase in healthcare costs rather than on other resources for the district,” says Mike Mingee, Fire Chief of the Carpinteria Summerland Fire Protection District (Carpinteria Fire District). “The additional expense was an unexpected setback, particularly since, as a government agency, we have made every effort to maximize our limited resources to maintain our fire suppression and emergency medical services program.”

According to Mingee, Blue Shield prohibited the district from using an employer-funded health reimbursement arrangement (HRA) to help his staff pay their $3,000 deductible under Blue Shield’s PSP 3000 plan. Like many other small businesses striving to reduce their healthcare costs while maintain benefits for employees, the Carpinteria Fire District purchased a high deductible health plan (HDHP) because of its lower premiums and then set up an employer-reimbursed “wrap” plan with the HRA to help his staff pay for medical expenses under their deductible.

Blue Shield prohibited the use of a “wrap plan” with all but three of its more expensive HDHPs, forcing the district to replace its HRA with an employer-funded health savings account (HSA) and to pre-fund the HSA account at $2,000 per single employee and $4,800 per employee with dependents, creating an unnecessary and irrecoverable expense of $150,000 whether or not claims are incurred.

“Blue Shield’s restrictions on ‘wrap plans’ are essentially denying small employers opportunities to reduce their healthcare costs, forcing them to pay higher premiums and discriminating against those who want to contribute to their employees’ deductibles with federally authorized wrap plans,” says Michael B. Adreani, partner with RPNA. “Brent Anderson was following the law and his fiduciary duty as a broker by presenting all plans available to small group employers and recommending the best benefits plan design for his client.”

According to Adreani, the fire district was exercising its rights to choose a lawful HRA, HSA, MERP, employer funded FSA, or any other federally authorized I.R.C. § 105 health coverage deduction plan to self fund all or a portion of the claims under a high deductible plan.

“Allowing a free market that promotes innovative solutions to help alleviate rising healthcare costs is absolutely essential if we are to save and improve what is best about American healthcare,” says California Assemblyman Chuck DeVore (R-Irvine). “Small businesses are a cornerstone of our economy and we need to protect their rights.”

Adreani states Blue Shield’s restrictions and practices violate Internal Revenue Code
§ 105 and California Insurance Code § 10702-10718.7.

“Section 10705 of the California Insurance Code says carriers must ‘fairly and affirmatively offer, market, and sell all of the carrier’s benefit plan designs that are sold to, offered through, or sponsored by, small employers,’” Adreani continues. “In essence, it guarantees all small group employers in California access to every health plan offered by every carrier. Blue Shield is clearly violating this law by cherry picking which employers have access to its plans.”

The complaint against Blue Shield requests that Insurance Commissioner Steve Poizner review and reject Blue Shield’s restrictions. Alternatively, the complaint requests an order to show cause to set a public hearing or a hearing before the Administrative Law Bureau of the DOI to rule Blue Shield’s restrictions and policies as unlawful, anti-employee, anti-employer, anti-competitive, and anti-healthcare access.

According to Adreani, Health Net, Kaiser Permanente, and Anthem Blue Cross have similar unlawful restrictions and have terminated or threatened to terminate contracts with brokers who continue to sell lawful wrap plans in the state. These carriers, along with Blue Shield, control 85% of all HDHPs sold to small employers in California.

“The impact of these restrictions is far reaching, potentially affecting more than 1.1 million small businesses in California who, in many cases, don’t even realize they are being denied opportunities to reduce their healthcare costs,” he explains.

Roxborough, Pomerance, Nye and Adreani LLP (RPNA) is a Los Angeles-based law firm providing expert legal counsel and representation to the California business community. Established in 1995, the firm offers a broad range of legal services in all facets of civil litigation, with its primary focus on litigation, legislation and policymaking issues involving insurance and business related concerns.

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