CRANSTON – Blue Cross & Blue Shield of Rhode Island has signed a settlement with state Health Insurance Commissioner Christopher F. Koller agreeing to change how it uses the “health status” factor in setting rates for small employers, the parties said today.

The deal, in which Providence-based BCBSRI admitted no wrongdoing, ends a proceeding Koller initiated in July, when his office issued a letter to Blue Cross saying that the insurer’s rating methods were not appropriate and explaining what it would need to do to comply with state law.

Blue Cross at first had disputed Koller’s assessment, but after he issued an order requiring the insurer to demonstrate at a hearing why it shouldn’t change its practices and pay restitution and penalties, it opted for a settlement instead.

In a written statement, BCBSRI spokesman Christopher Medici said the insurer had agreed to the deal “in order to avoid the costs associated with a hearing process that would have been duplicative of the market-conduct examination that is currently under way.”

“Our past use of the health-rating factor was proper, as well as consistent with the law,” Medici added. “Once the market-conduct examination is complete and the draft report is shared with BCBSRI, which is required by law, we will respond to OHIC accordingly.”

At issue was the manner in which Blue Cross sets rates for employers with 50 or fewer employees.

By state law, insurers can vary rates for small groups based on just a few factors, and health status in particular can be applied only to increase or decrease an employer’s rates by no more than 10 percent.

However, the use of this factor “has proven problematic,” Koller noted in a news release. UnitedHealthcare of New England has also been cited for using it inappropriately, in 2006.

Last year, a task force of brokers, employers, consumers and insurers led by Koller’s office concluded that health status should no longer be allowed as a rating factor. And this year, legislation was passed by the R.I. General Assembly that will end its use in the state as of Jan. 1. (READ MORE)

This spring, Koller’s office determined – based on documents made public by Blue Cross and on initial findings of a market conduct examination – that Blue Cross was applying the health-status factor inappropriately, his office said in its announcement today.

That led to the July letter, and to the proceedings ended by the settlement announced today.

The document – which bears the date Aug. 21 – includes an agreement by Blue Cross to alter how it applies the health-status factor going forward as well as a stipulation that the deal will not restrict Koller’s future actions with regard to Blue Cross, such as the ongoing market-conduct examination.

“This agreement addresses Blue Cross’ rating methods moving forward,” Koller said. “My staff is currently finishing its market conduct examination of Blue Cross’ past use of the health-status factor. That exam should conclude sometime this fall. Once an examination report is written, the office will take appropriate action.”

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.

The R.I. Office of the Health Insurance Commissioner, formerly in Providence, moved to Cranston this July. (READ MORE) Additional information – including the just-released settlement agreement between BCBSRI and the OHIC, plus a number of related documents – is available at www.ohic.ri.gov.