CRANSTON – State Health Insurance Commissioner Christopher F. Koller today rejected a rate-increase request by Blue Cross & Blue Shield of Rhode Island, which sought to boost premiums for Direct Pay subscribers by an average of 5.9 percent, effective April 1.

Direct Pay plans are offered to individuals and families who are not eligible for either government coverage, such as Medicare and Medicaid, or private group coverage.

About 14,000 subscribers and dependents are now enrolled in the plans, which are the only individual-market option in the state. Blue Cross divides those subscribers in two pools: one for those who pass medical underwriting and one for everyone else. Direct Pay rates also are tiered by age bracket and gender.

For Pool II, with underwriting, Blue Cross had sought hikes averaging 4.3 percent. For Pool I, without underwriting, the insurer had sought rate hikes averaging 6.8 percent. Such requests, however are subject to the health insurance commissioner’s approval. So last month, Koller held public hearings and took written and oral testimony.

In denying the hikes, he cited two key factors: the “inappropriateness” of Blue Cross’ seeking to finance its reserves through charges on Direct Pay subscribers; and favorable enrollment trends among healthy subscribers.

Nearly half of the requested rate increase would have gone to increase Blue Cross’ reserves, Koller noted. Yet the insurer’s overall reserves remain within the range previously deemed sufficient by his office. Moreover, Koller said, Blue Cross knew that, in each of the two previous years, he had rejected such contributions from this particular class of subscribers. “Direct Pay members, who purchase their insurance entirely with their own after-tax money, should be the last group of subscribers who should be asked to contribute to Blue Cross’ reserves,” he wrote in his decision today.

The rest of the rate-hike request was also denied, Koller said, because more healthy people have been signing up for the plans than Blue Cross had previously projected, and that is helping drive down Direct Pay costs. The insurer is “still making money on this product,” he wrote.

“Blue Cross has a history of conservatism in budgeting its rate needs for this product,” he said. “Such caution is beneficial for the company but not for the Direct Pay enrollee. As this office has noted before, if there is a risk to be borne in the rate-setting process, that risk must be borne by the insurer not the insureds.”

Asked for comment, Blue Cross spokesman Chet Lasell replied with a written statement: “Naturally, we are disappointed with OHIC’s decision, since our rate request was actuarially justified. Given this economic climate, we understand the rationale behind OHIC’s decision. We do not plan to appeal this ruling.”

Koller, meanwhile, specifically cautioned that, although rates for the plans will hold steady this year, they are likely to rise in the future.

“Direct Pay is subject to the same cost pressures as all other health insurance programs,” he wrote, and “health care costs are rising at two or three times the rate of general inflation. Addressing that phenomenon remains the central challenge for all of us concerned with health care affordability and accessibility.”

Blue Cross & Blue Shield of Rhode Island, based in Providence, covers more than 670,000 members. BCBSRI is an independent licensee of the Blue Cross and Blue Shield Association. Additional information is available at www.bcbsri.com.

Additional information, including the full text of the BCBSRI rate-hike filing and today’s decision, is available from the R.I. Office of the Health Insurance Commissioner at www.ohic.ri.gov.