Anthem Blue Cross: more big rate hikes on the way

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Just a year after notifying individual policyholders of rate increases of up to 39 percent, Anthem Blue Cross of California has notified individuals that more hikes are on the way, effective May 1.

According to the San Francisco Chronicle, Alison Heath and her husband will be charged 26 percent more than currently charged, which was already raised 16 percent last year. Heath says their annual premium is expected to be about $17,700.

“I almost feel like I’m a victim of a crime,” said Heath, 55, who doubts she could find alternative coverage because of minor pre-existing conditions. “It’s like I have a gun to my head. I have to pay because I’m not willing to live without insurance.”

Last year, the company made national headlines when it told individual policyholders that it was raising rates as much as 39 percent for certain of its 700,000 customers.  After the state’s Department of Insurance asked Anthem to justify the rate increase, the company discovered errors in its calculations and reduced its planned increases.

While the rate increases are alarming to its policyholders, they certainly are not unique among insurers. Recently, Blue Shield of California notified its customers that it planned to increase rates on individual policies by up to 59 percent. Aetna has also notified many of its customers to expect large rate hikes.

Anthem and others claim that the companies lose money on individual policies and that the rate increases were reviewed by actuaries and comply with law. Some customers believe that the companies are trying to raise premiums as much as possible before 2014, when the new health care law kicks in, potentially limiting future increases.

The Department of Insurance recently requested that four insurers, including Anthem and Blue Shield, delay rate increases for a period of 60 days, so that officials had an opportunity to review their proposals. Officials at the department also suggested that another state agency, the Department of Managed Care, had jurisdiction over the individual policies.

When contacted by the Chronicle, officials at that agency said that their authority was limited to simply reviewing proposals, with no authority to approve or deny rate increases.

San Francisco Chronicle

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Blue Cross Blue Shield exec walks out with $11 million severance package

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Folks in Massachusetts are boiling over the disclosure on Tuesday that the former chief executive of Blue Cross Blue Shield walked away with an $11 million separation package after he abruptly quit last year.

Cleve Killingsworth is smiling all the way to the bank with $11 million.

The non-profit company booked a massive $149 million loss in 2009, prompting the executive to resign his post.

The largest insurer in the state, serving 3 million customers, Blue Cross Blue Shield paid Cleve Killingsworth severance and bonuses totaling $8.2 million last year, and plans to pay an additional $1.8 million this year and $925,000 in 2012.

Ethan Rome of Health Care for America Now, a Washington D.C.  advocacy group said, “These numbers are unconscionable and people should be outraged.”

“If you lose $149 million and then you get paid $11 million for doing it, it is very clear to people where their health-care dollars are going. And it is not for health care.”

A spokesman for the company said the compensation agreement was signed in 2006 when times were much better and that during Killingsworth’s five-year tenure, three years were the best the company had ever experienced.

However, critics of the executive said that Killingsworth had a reputation for clashing with executives in the organization, spent too much time out of the office and had difficulty containing runaway costs.

Blue Cross Blue Shield board member Paul Guzzi said, “The Board understands and is sensitive to the community’s interest and concern about executive compensation. With the full support and urging of our new President and CEO Andrew Dreyfus, we have significantly reduced the CEO’s compensation and benefits.”

In the state capital, Sen. Mark Montigny, has pushed for legislation capping non-profit salaries at $500,000. “This is a nonprofit in a very sensitive industry that is unable to keep their costs under control.  I have a real concern about this kind of parachute. It’s disproportionate, and I don’t think it’s justifiable.

One union leader, John Zuccaro, who represent municipal workers called the news “troubling.”

“Our members are paying a 50 percent increase in their premiums this year, and have had their wages frozen,” Zuccaro said. “I don’t see that same type of partnership coming from the insurance companies.”

Killingsworth’s predecessor, William C. Van Faasen, who ran the company for 13 years, received a severance payment of $16.4 million when he retired in 2006.

Information from: Boston Herald

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California water utility tries to push through 40.3 rate increase

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Only one year after California American Water increased its water rates by 24.3 percent for Sacramento-area customers, the utility is back asking the state’s utility regulators to allow them to enact another rate increase of 40.3 percent over the next three years.

The company said that rising costs, mostly for infrastructure projects, are the reason for the requested rate increases. It also said that it was planning an aggressive meter retrofit program.

Angry residents packed the City Council chambers in Rancho Cordova, and 30 people spoke about the proposed increase. Most of the residents said that even if there is a legitimate need for improvements to the system, given the current state of the economy, now was not the best time.

“We believe our water service is still a tremendous value,” Andy Soule, general manager of the water company’s Northern California division, said during the meeting.

Most of the residents at the meeting disagreed, citing poor customer service, faulty meter readings and billings that have tripled in the last decade.

An independent advocate agency, the Division of Ratepayer Advocates for the PUC, has already filed an objection to the proposed rate hike for Sacramento and two other areas in California, saying the hike would present “unacceptable rate shock” for customers.

The advocate’s office did its own analysis of the request and said that the increase should be substantially lower than what the company is seeking. It says the increase should be only 13.8 percent in 2012, followed by a decline in rates for 2013.

Breaking it down by year, California American is asking for permission to increase rates by 22.8 percent for 2012, 6.7 percent for 2013 and 7.1 percent for 2014.

The utility is a subsidiary of publicly traded New Jersey-based American Water, which serves 16 million customers in 35 states.

Information from: The Sacramento Bee

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Controversial L.A. Better Business Bureau chief rescinds resignation

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The head of the Better Business Bureau’s Southern California Chapter, William Mitchell, is attempting to revoke the resignation he tendered in December, while under scrutiny of the national organization for alleged misconduct within the agency. At the time, he said he was resigning for health reasons.

Can we really trust someone who resigns, then quickly un-resigns, for vague reasons?

Now he vows to fight charges that he was responsible for the scandal that exposed how businesses were being given higher ratings if they became dues-paying members of the organization. Mitchell had been credited in the past for devising the letter-grade rating system, which has since been dropped by the organization.

In November, an ABC News investigative team signed up phony businesses for membership in the Southern California BBB, and immediately received A grades. The investigation also looked at businesses that were not members and had very few unresolved complaints, and found that they were given much lower ratings.

Mitchell was also heavily criticized for the salary paid to him annually by the non-profit. According to its 2008 tax filing, Mitchell was paid $409,490 that year. His salary was far more than any local heads of the BBB, and greater than the organization’s national president.

“When I tendered my resignation last month, mainly due to my health, I hoped it would clear the path to better relations between the Council of Better Business Bureaus and the Los Angeles BBB,” Mitchell wrote in his e-mail, a copy of which was obtained by the Los Angeles Times. “However, the Council used my resignation as an opportunity to try to put their own people in place of our Board of Directors and to insert their designee as CEO. If this were to happen, Council would effectively control the LABBB and our considerable assets.”

Mitchell says that the National Council of the Better Business Bureaus wants to take over control of the local agency by inserting their own people as board members.

“Rest assured that we will pull out all stops to defend ourselves against Council’s unlawful overtures,” he said in the memo.

In an interview with the Times on Tuesday, Mitchell said that if he were to leave, there would be no one left to defend the local bureau from the national organization. He did not say what that might entail, or why the local office might have to defend itself.

Mitchell also addressed the salary issue, and said his reported salary had been inflated by vacation pay and bonuses, and that his actual base salary was only $340,000.

Los Angeles Times

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Madoff Trustee demands $300 million from N.Y. Mets owners

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The owners of the Mets turned a blind eye to Bernard Madoff’s massive fraud, reaping $300 million in false profits and using a large chunk to run the team, according to a lawsuit unsealed Friday. The lawsuit claims the owners were so dependent on the disgraced financier’s too-good-to-be-true returns that it “faced a severe and immediate liquidity crisis” when Madoff’s crimes were revealed in 2009.

The searing allegations were made by Irving Picard, the trustee appointed to recover funds for investors burned by Madoff’s scheme. The suit filed by Picard in federal bankruptcy court in Manhattan names Sterling Equities, along with its partners and family members, including Mets owner Fred Wilpon, team president Saul Katz and chief operating Jeff Wilpon, the owner’s son. Picard said Sterling withdrew over $94 million in fictitious profits from Mets accounts with Madoff.

“Given Sterling’s dependency on Madoff, it comes as no surprise that the partners willfully turned a blind eye to every red flag of fraud before them,” Fernando A. Bohorquez, Jr., a lawyer representing Picard, said Friday.

The suit had been filed under seal in December while the parties tried to work out a settlement. But lawyers told a judge this week that talks had collapsed and consented to having the complaint made public. Its opening salvo: “There are thousands of victims of Madoff’s massive Ponzi scheme. But Saul Katz is not one of them. Neither is Fred Wilpon.”

The complaint alleges the partnership “received approximately $300 million in fictitious profits” from hundreds of accounts opened with Madoff’s firm. Of that, it says, $90 million of “other people’s money” were withdrawn to cover day-to-day operations of the Mets.

Wilpon and Katz fired back Friday with a statement calling the suit “an outrageous strong-arm effort to force a settlement by threatening to ruin our reputations and businesses we built for over 50 years.”

The pair called the accusations “abusive, unfair and untrue,” insisting they were victims of the fraud. “We should not be made victims twice over — the first time by Madoff and again by the trustee,”  they wrote.

The lawsuit said Wilpon and Katz had meetings with Madoff in his office at least once a year, a privilege few investors enjoyed, and Katz at times spoke directly with Madoff at least once a day. It also said Wilpon and Katz maintained investments in Madoff accounts, even though Ivy Asset Management expressed concern in 2002 and the Sterling Stamos hedge fund warned repeatedly Madoff was “too good to be true.” The suit said a Sterling consultant advised Katz something was amiss in 2003, and Merrill Lynch warned them about Madoff as early as 2007.

The suit alleged that by December 2008, Sterling had referred approximately 178 “outsider” investor accounts to Madoff. It also said that when Wilpon and his family also bought Nelson Doubleday’s 50 percent ownership of the Mets in 2002, Madoff declined a chance to invest in the team that he was offered by Sterling.

The lawsuit said cash from Madoff accounts, including fictitious profits, was used for team payroll, players’ deferred compensation and stadium operations. The suit has cast a cloud over the Mets ownership, which has said it’s exploring a partial sale of the team. But Wilpon and Katz denied Friday that the operation was ever dependent on Madoff.

“That is complete nonsense,” they said. “We have good, sound businesses that were successful years before we invested with Madoff, including both real estate and the New York Mets.”

Madoff, 72, is serving a 150-year sentence in a federal prison in North Carolina after admitting that he ran his scheme for at least two decades, using his investment advisory service to cheat individuals, charities, celebrities and institutional investors.

Losses are estimated at around $20 billion, making it the biggest investment fraud in U.S. history.

The lawsuit describes the Sterling Partners as “a team of sophisticated professionals who built a business empire spanning four major industries, including real estate, professional baseball and sports media, private equity and hedge funds.”

It says Sterling Partners “willfully disregarded any criticisms of Madoff and simply buried their heads in the sand” during a nearly quarter-century relationship in which it supported its substantial business empire with Madoff money and reaped the benefits of bogus profits.

The firm was “simply in too deep … to do anything but ignore the gathering clouds,” the lawsuit says. “In the face of the parade of red flags, the Sterling Partners chose to do nothing.”

Numerous financial industry professionals over the years warned Sterling about Madoff and speculated he was operating a fraud, including one Sterling consultant who advised Katz in 2003 that he “couldn’t make Bernie’s math work and something wasn’t right,” the court papers say.

The lawsuit says Sterling was on notice as early as 1991 that Madoff’s firm was audited by a three-person operation in Rockland County that consisted of a certified public accountant, a semiretired accountant and an assistant. In 1996, it says, multiple banks refused to serve as custodian of Sterling’s 401K plan because of concerns about Madoff’s lack of transparency and inability to provide daily account balance information.

At one point after several financial news publications raised questions about the Madoff business in May 2001, Sterling considering getting fraud insurance that would have included a Ponzi scheme but Sterling ultimately rejected the insurance because coverage limits meant most of their money was uninsurable, according to the court papers.

The lawsuit said Sterling’s Madoff accounts produced positive returns during the Black Monday stock market crash of 1987, the bursting of the dot-com bubble in 2000, the terrorist attacks of Sept. 11, 2001, and the recession and housing crisis of 2008.

“Remarkably, Sterling’s [Madoff] investments were effectively immune from any number of market catastrophes, enjoying steady rates of return even during events that otherwise devastated financial markets, ” the lawsuit says.

The Associated Press

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Madoff trustee sues JPMorgan Chase for role in massive fraud

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E-mails and other internal documents show that executives at JPMorgan Chase were complicit in Bernard Madoff‘s massive fraud, lawyers seeking to recover funds for his victims said Thursday.

The lawyers work for a court-appointed trustee who filed a $6.4 billion complaint under seal late last year against JPMorgan, the disgraced financier’s primary bank for two decades. The parties agreed to make portions of it public on Thursday.

Among the e-mails cited is one in 2007 in which an unidentified JPMorgan Chase employee recounts being told “there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme.”

The material supports allegations that “the bank’s top executives were warned in blunt terms about speculation that Madoff was running a Ponzi scheme,” attorney Deborah Renner said in a statement. “Yet the bank appears to have been more concerned only with protecting its own investments in (the Madoff firm’s) feeder funds.”

In a statement on Thursday, JPMorgan said the complaint “is meritless and is based on distortions of both the relevant facts and the governing law.” It added that the bank “intends to defend itself vigorously against the unfounded claims brought by the trustee.”

The bank has denied having any suspicions about Madoff, saying it followed all commercial banking regulations in its dealings with him.

Trustee Irving Picard is in the midst of a two-year campaign to recover funds for Madoff’s burned clients with a flurry of lawsuits against financial institutions and brokers. Last year, he filed multibillion-dollar suits against HSBC and UBS AG over similar allegations the banks deny.

Madoff, 72, is serving a 150-year sentence in a federal prison in North Carolina after admitting that he ran his scheme for at least two decades, using his investment advisory service to cheat thousands of individuals, charities, celebrities and institutional investors.

Losses are estimated at around $20 billion, making it the biggest investment fraud in U.S. history.

Picard’s lawyers have accused JPMorgan and its affiliates of being “willfully blind” to “numerous red flags surrounding Madoff,” including the unwavering double-digit returns he reported to wealthy investors on fictitious account statements.

According to the lawsuit, JPMorgan initiated a thorough investigation of Madoff in 2008 after the nation’s financial crisis had begun — and that the inquiry was frustrated at every turn.

Madoff feeder funds “repeatedly found creative ways to dodge questions” about their knowledge of his investment schemes, the suit says. Bank Medici, one of Madoff’s biggest partners, promised to provide various risk reports, but then balked.

By October, a member of the bank’s due diligence team was questioning claims by a big feeder fund, Fairfield Greenwich, that it had access to the secretive office suite where Madoff did business.

“Judging from the lack of thoroughness of some of their other due diligence I am not entirely convinced that Madoff allowed them to actually enter the trading area,” the employee wrote.

Another bank official expressed amazement that the bank and hedge fund executives who were funneling money to Madoff had asked so few questions about his strategy, and observed that some seemed afraid to confront him.

“It’s almost a cult (Madoff) seems to have fostered,” the official wrote.

The complaint also cites a suspicious activity report JPMorgan sent to the Serious Organised Crime Agency in London on Oct. 28, 2008, less than two months before Madoff revealed himself to be a fraud.

The suit says the report concluded Madoff’s balance sheet appears “too good to be true — meaning it probably is.”

The report was triggered in part by a strange conversation that a bank employee had with one of its Madoff investment partners, Aurelia Finance. During that conversation, according to the suit, “Aurelia Finance representatives made threats … referring to ‘Colombian friends’ who could ’cause havoc’ if the bank went ahead with a plan to redeem some of its Madoff investments.”

The JPMorgan employee, the suit says, took that to mean that Colombian drug dealers were somehow involved in the investment deal, and would be angered if the bank dropped out.

JPMorgan began trying to pull more Madoff investments in October, including $167 million placed through Fairfield, according to the suit. By the time Madoff was arrested in December, it had managed to sell off all but $35 million of its stakes in his feeder funds

The Associated Press

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Pa. urged by retail lobby to join Internet sales tax group

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Former Iowa politician, Christopher Rants, now head of an organization calling itself the Main Street Fairness Coalition, lobbied the Pa. House Appropriations Committee on Tuesday telling it that Internet sales are costing the state about $706 million in lost sales taxes.

The MSFC, until recently called the e-Fairness Coalition, is a well-funded lobbying group comprised of large brick-and-mortar retailers, shopping centers and publicly traded real estate investment trusts. The goal of the MSFC is to “level the playing field” and “eliminate the unfair tax advantages” that are not available to traditional retailers.

Essentially, the privately-funded group wants Congress to overturn long-standing laws governing the collection of sales tax on mail-order and Internet retailers. Cash-starved states are looking at the taxes as new source of revenue to help offset massive budget deficits.

Currently, federal law protects online retailers from having to collect sales tax on goods they ship to states in which they do not have a physical presence. A 1992 court decision, Quill v. North Dakota, established the law, which at the time applied to catalogue sales, although has been interpreted to also include Internet sales.

Rants told lawmakers that 24 states have signed on to a program that would allow them to collect the tax for each other, and asked that Pennsylvania be the 25th member of the group. The state would have to agree to conform its definition of taxable items to a uniform set of rules adopted by all states in the group.

States would also have to provide software to smaller retailers to allow them to more easily collect the sales taxes.

Existing laws in most state require residents to file a “use tax” return, to declare goods that are purchased out-of-state, and shipped to an address within the state. The number of taxpayers that file return in each state that require it are typically small.

Last month, Illinois became the first state to announce that it would require residents to declare out-of-state purchases on their individual Illinois state tax returns. Tax authorities there said they planned on auditing purchases made by individuals, and would assess interest and penalties on taxpayers that fail to report purchases

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