Blue Cross Blue Shield hit with $8 million penalty by insurance department

State regulators slapped Blue Cross Blue Shield of Alabama last month with an $8 million penalty for charging rates that differed from those approved by the Alabama Department of Insurance from 2005 to 2013.

The charges investigated by the department 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 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."

The rate variances resulted in undercharges of almost $107 million and overcharges of almost $33 million, according to the order issued on Aug. 16 by the Alabama Department of Insurance.

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