MONTGOMERY, Ala. (AP) — Blue Cross Blue Shield of Alabama has been hit with an $8 million penalty for charging rates from 2005 to 2013 that differed from those approved by the Alabama Department of Insurance.
Al.com reports the charges occurred in about 1,400 plans issued to small group employers — those with two to 50 employees — and some COBRA plans for former employees.
Company officials have said the rate variations were tied to a policy that was intended to reduce the shock of large rate increases and resulted in savings for most customers. However, attorneys suing the company for alleged anti-trust violations said the practice violated state laws that require rates to be filed and approved by insurance regulators.
The rate variances resulted in undercharges of almost $107 million and overcharges of almost $33 million, according to the Aug. 16 order by the insurance department, which has been investigating the rate charges since February.
The $8 million assessment was levied because the company failed to inform the department about its methods for raising or reducing rates.
"The goal was to smooth rate adjustments over time and provide small employers more predictability in their business planning," according to a statement issued by Blue Cross Blue Shield of Alabama. "We believed these practices were beneficial overall to our small business customers."
In the statement, Blue Cross officials said its rate-stabilization practices were common in the health insurance industry and ended in 2014.
"Although premium rate stabilization efforts are common insurance practices, we mistakenly did not document these practices in our Small Group rate filings," the statement read. "We also did not adjust the rating category for some small business customers when their annual employee health insurance enrollment fluctuated from the previous year."
The statement reported that refunds have been made to more than 1,400 small business customers and 2,200 COBRA customers. The company will not seek reimbursement from customers who were undercharged. Customers who believe they were overcharged by the company can make a claim to the Alabama Department of Insurance within the next two years.
The company must also pay $100,000 to the department for costs related to the investigation.