Consumer Federation of California

California’s insurance commissioner said an 11% rate increase for small businesses by Anthem Blue Cross is "unreasonable" because the company overstated its costs and improperly added fees related to the federal healthcare law.

Insurance Commissioner Dave Jones also said Anthem, a unit of industry giant WellPoint Inc., was reaping excessive profits in California. But under state law the commissioner has no authority to block the rate increase from taking effect this month.

"This is a huge loophole in California law and in the federal Affordable Care Act," Jones said.

Anthem Blue Cross disputed some of the state’s numbers and said higher premiums are warranted to cover rising medical costs.

"The rate increases in the small group market are not unique to Anthem Blue Cross, but rather represent an economic reality faced throughout the entire industry as healthcare costs continue to escalate faster than our state’s economy as a whole," said company spokesman Darrel Ng.

Jones said the department’s actuaries determined that Anthem was overstating its projections for patients’ future medical costs. He also said it was unlawful for Anthem to impose fees on customers this year that are not collected by the federal government until 2014 under the Affordable Care Act.

Jones said he is reviewing his legal options if insurers don’t back down on those fees. He estimated they could amount to more than $35 million this year on health policies that his agency regulates.

Anthem said these annual policies extend into 2014 so it’s proper to pass along those fees, which it said run about $9 per person annually.

Anthem said rates for these small companies with 50 or fewer employees are rising 6.5%, on average, up to a maximum of 17.4%. State regulators, however, calculated that rates are going up 10.6%, on average, after accounting for reductions in benefits under these preferred-provider organization plans.

The two sides also disagreed over how many small business employees and dependents would be affected by these changes. The state said 284,000 people could be affected, but Anthem said this rate filing only covered 52,396 customers.

In its rate filings, Anthem said it expects net income of about $300 million in California for 2012. Overall, WellPoint has earned $2.2 billion in profit for the first nine months of last year. The Indianapolis company runs Blue Cross plans in California and 13 other states.

In a similar move in April, Jones labeled small-business rate hikes from Aetna Inc. as unreasonable. They were 8%, on average, with a maximum of 21%.

Aetna disregarded the insurance department’s determination and said the increases were based on reasonable cost projections.

A ballot measure is scheduled for November 2014 that would grant the insurance commissioner the power to reject unreasonable rate increases for health insurance. The commissioner holds that authority for property and auto coverage under Proposition 103 passed in 1988.

Insurance department officials are still reviewing a separate request from Anthem to raise rates by up to 25% for about 630,000 individual policyholders, effective next month.