Insurance Commissioner Steve Poizner announced last week that his office will conduct an examination of Anthem Blue Cross’s claims-related data used by Anthem to justify its future rate filings. This comes after Anthem’s decision to withdraw its recent application to increase rates to thousands of insureds in California.  Here is the press release:

NEWS RELEASE

Insurance Commissioner Steve Poizner Announces Examination of Anthem’s Claims-Related Data

Full Independent Actuarial Review of Recently-Withdrawn Anthem Filing Also Released Insurance Commissioner Steve Poizner announced that the California Department of Insurance (CDI) had begun an effort to assess the validity of the claims data used by Anthem Blue Cross to justify future rate filings.

“As Anthem readies its new rate filing, I have directed auditors at the Department of Insurance to determine whether the underlying information used by Anthem to prepare these documents is fair and accurate. This review will investigate whether there are problems with their claims payments systems and data controls,” said Commissioner Poizner. “I will not allow insurers to inflate their rates based on faulty systems or inaccurate data.”

The examination, started in early April, is scrutinizing Anthem’s accounting and claims systems in regards to the recording and documenting of premiums and claims data, and a review of the information systems and controls in place. The examination includes a review of the Company’s paid claims database, premium database and information systems processes and controls.

The data analyzed in the exam is ultimately the input that goes into the calculation of the company’s medical loss ratio.

Commissioner Poizner also released the full independent, outside actuarial analysis performed by Axene Health Partners, LLC. The 145 page report was conducted over a 10-week period and required 500 hours of work by four licensed actuaries. A summary of the review is below and the entire review is available at our Web site at http://www.insurance.ca.gov.

Based upon a thorough review of Anthem’s calculations, Axene found numerous errors in the methodology used by Anthem to project total lifetime loss ratios. Correcting these errors resulted in lower lifetime loss ratios than initially calculated by Anthem.

The errors identified included:

Error #1: Double counting of aging in the calculation of underlying medical trend for the projection of total lifetime loss ratio.

Error #2: Anthem overstated the initial medical trend used to project claims for September 2009 for known risk factors.

Both of these errors are errors of math and not differences in actuarial opinion.