Profits over People

The FACTS About Blue Cross

Blue Cross provides coverage to nearly one in four insured Californians, so in addition to having millions to spend to block reform, its practices and priorities affect the lives of 7 million Californians --  and their families and communities.

Since its $20.8 billion merger deal in late 2004, Anthem Blue Cross and Wellpoint have grown into the nation's biggest insurer,  now providing coverage to 35 million people. Even with the nation mired in a deep recession,  Anthem Blue Cross has not hesitated to continue its pattern of hiking rates for customers. Within the past six months, 80% of holders of individual policies have received notice of premium increases up to 39%.

At the same time, of course, there is little promise of better coverage of medical bills. In California, the average claim-rejection rate is 1 in 5. In particular, the insurer has become known for routinely canceling individual policies of pregnant women and patients who are chronically ill. This led the state of California to fine Anthem Blue Cross $1 million.

Of course, California's experience was not an isolated incident.  In 2008, Nevada reached a $1 million settlement with Anthem Blue Cross and Blue Shield for overcharging policyholders. Kentucky officials ordered Anthem Health Plans to refund $23.7 million to 81,000 seniors and disabled patients over inaccurate Medicare claims payments. Colorado obtained a $5.7 million refund for its Anthem Blue Cross customers.

Doctors have filed suit against the corporation, with 800,000 saying they were denied rightful payment for services they provided for policyholders. And the federal government barred Anthem Blue Cross and Wellpoint from participating in a Medicare program after the corporations denied medicines to seniors. 

But Anthem and Wellpoint had at least two internal initiatives to fund: multi-million dollar lobbying efforts to kill reform, and payment of plump severance packages to executives and highly compensated CEOs, such as Angela Braly, whose $10 million salary is augmented by off-the-books benefits and stock options. It was Braly who announced bluntly at a business meeting that the corporation puts profits over people: "We will not sacrifice profitability for membership."

After killing reform in California, Anthem Blue Cross and its parent company Wellpoint target D.C:

In California, Anthem Blue Cross is ever-present at legislative health committee hearings with its lobbyists registering objections at any and every proposed bill to regulate the insurance market to make it more fair to consumers. Most of the time, it wins -- as it did after spending $2 million on a misinformation campaign to kill Governor Schwarzenegger's health care reform package.

That done, Wellpoint now has set its sights squarely on reform efforts in Washington D.C.  So far, the Center for Public Responsibility has tracked lobbying expenditures of about $3 million for the first six months of 2009. It's a pretty safe bet that many more millions will follow before year's end and Capitol Hill's final determination of the shape of health care reform.

In addition, Wellpoint has been savvy in inviting individuals with close connections to highly placed Washington figures to serve on its board of directors, and an ex-vice president of Wellpoint has been working on the staff of Senator Baucus to help form the outlines of his Senate Finance Committee's version of reform. The corporation that insures more Americans than any other has clearly positioned itself in an attempt to influence federal policy to its benefit.

With $1 billion "withdrawal," Blue Cross treats CA consumers like a corporate "ATM"

Still, many in California, whether consumers, policy makers, or the media, have not forgotten Anthem Blue Cross' business tactics in the Golden State. Two years ago,  Blue Cross sent $950 million to its parent company WellPoint's corporate headquarters in Indiana. This "dividend," as it was characterized by WellPoint, caught the eye of California's Department of Managed Health, whose director Cindy Ehnes expressed concern that Blue Cross was treating "California as its ATM machine," even as "Californians are struggling to get healthcare for their families."

Ehnes characterized the payment as "out of the bounds of propriety and certainly the spirit" of an agreement made when Blue Cross' current corporate parent was formed through a merger of two companies, Anthem and WellPoint.

Blue Cross reneges on Its policyholders, the very people to whom it owes its profitability

Not long ago, in 2006, 10 former Blue Cross members sued the insurer, claiming Blue Cross had retroactively cancelled their coverage after illness or expensive medical conditions -- such as pregnancy -- surfaced.  These policies were cancelled after consumers had been paying premiums for months, even years.  The class-action lawsuit against the insurer grew to 6,000 former members who say the same thing happened to them.

Blue Cross employees, under oath, admit that insurance policies undergo additional scrutiny if a patient has an expensive claim. Against state law, the company rescinded coverage after mistakes on applications were discovered -- mistakes, not fraud, which is the legal standard set by the state of California.

Patients were often left with thousands, if not hundreds of thousands of dollars in unpaid medical bills for procedures that Blue Cross had previously approved before cancelling coverage.  Doctors and hospitals eventually joined the class action lawsuit against Blue Cross to recoup some of those claims. 

This year, the Department of Insurance investigated BC Life, a Blue Cross Company, and its cancellation of policies. It found improprieties in over half of the cases it investigated. The Department slapped the company with 67 citations. Earlier this year, the Department of Managed Care looked at Blue Cross rescissions and, after evaluating a sampling of 90 cases, issued citations in every one. Still pending is a legal action filed by the Los Angeles City District Attorney on behalf of consumers who got the shaft from Anthem Blue Cross.

Cherry-picking only the healthiest consumers, Anthem Blue Cross dumps others 

Scouring a person's application to find an excuse to cancel policies is just one way that Anthem Blue Cross has managed to ensure its consumer base is relatively healthy and low cost. 

In recent years, so-called "consumer-driven health plans"' have become a more prevalent and effective tool used by health insurers to "cherry pick'' or skim healthier (read: more profitable) consumers. These plans tend to be attractive to healthier consumers, because the monthly premiums are comparatively low in exchange for higher-deductibles and co-pays should medical attention be required.

Since Blue Cross converted from a non-profit to for-profit in California a dozen years ago, critics have charged the company is the most "sophisticated'' of any insurer in California at sifting out the healthy from the unhealthy.   The California Department of Insurance calls Blue Cross' Tonik health products the "poster child'' of the company's efforts to cherry-pick the market.

The website, dressed up in flashy colors and featuring silhouettes of snowboarders, encourages applicants to be "Thrill-Seekers,'' and buy a $5,000 deductible;  be "Part-Time Daredevils," with a $3,000 deductible;  or be "Calculated Risk Takers,'' with a $1,500 deductible.  In spite of their target market, the plans fall short of covering what many young people would be most likely to need -- maternity coverage.  Wellpoint, Blue Cross' parent company, introduced the Tonik line in 2004 in six states, including California, with expansion plans to enter other five more states in years to come.

Highest profits: Blue Cross earns more than other large plans

Blue Cross California's HMO plans pay the least on patient care of any of the five largest health insurers, while earning the most profit.

In an annual report, the California Medical Association found Blue Cross spends 78.9 cents per premium dollar on health care. Meanwhile, their profits are about twice as much (or more) than any other large health plan. 

Comparison of largest HMO plans, in the years 2004-2005


HMO plans are only part of the story.  Enrollees can choose Health Maintenance Organization plans or Preferred Provider Organization plans. Compared to its PPO offerings, the HMO plans look downright generous.

Blue Cross benefits most from PPO plans that are purchased by people who cannot buy through their employer or in a group -- or, by people who fall for the pitch that the plans are in an elite category because they allow consumers freedom to choose their own "preferred providers." 

For enrollees who buy coverage on the individual market, Blue Cross spends 51 cents for every premium dollar on health care, while pocketing 27 cents. 

Comparison of two PPO insurers (only two highlighted by Department of Insurance in 2006)



Girion, Lisa. "WellPoint Dividend Is Questioned," Los Angeles Times. May 26, 2007.
Girion, Lisa. "Former Members Sue Blue Cross" Los Angeles Times. March 28, 2006.
Girion, Lisa. "Scrutiny of Sick Patients is Detailed" Los Angeles Times. April 26, 2006. 
Girion, Lisa. "Health Insurer Cited In Policy Cancellations," Los Angeles Times. July 3, 2007.
Snapshots: Illustrating the Potential Impacts of Adverse Selection on Health Insurance Costs in Consumer Choice Models." Kaiser Family Foundation. November 2006.
Hall, Mark and Christopher J. Conover. "For Profit Conversion of Blue Cross Plans: Public Benefit or Public Harm?" Annual Review of Public Health. 2006. 27: 443-63. 
Garamendi, John. "Priced Out: Health Care in California." California Department of Insurance. 2005.
Blue Cross Tonik website:
Goldstein, Avram. "Health Insurers Vie for 'Young Immortals.'" Bloomberg News. June 17, 2007.
Knox-Keene Health Plan Expenditures Summary, 2004-2005. California Medical Association.  
Health Insurance in California: Where Do Your Premium Dollars Go?" California Department of Insurance. June 1, 2006.
SEC Filings for Aetna, Cigna, HealthNet, UnitedHealth, WellPoint-Blue Cross.
SEC filings for WellPoint 2003, 2004

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