With perhaps the worst timing in recent history, Anthem Blue Cross announced a 39% rate hike for its individual market subscribers in California, right at the moment when the health care reform bill was on its knees in Congress. The President and Democratic leaders pounced, and used that rate hike as a symbol for the two-month stretch run on the bill, returning to it over and over again as the reason why the system was broken and reform was desperately needed. Now, after the reform bill passed, two days before the rate hikes were to take effect, Anthem Blue Cross has withdrawn the proposed increase.

Anthem Blue Cross withdrew plans Thursday to raise health insurance rates for California customers by as much as 39 percent, citing errors in its earlier calculations.

The Woodland Hills-based company said it will revise the rate requests it had filed with the California Department of Insurance and the Department of Managed Health Care as soon as possible.

Anthem Blue Cross reserves the right to refile rate requests in the future, but clearly the public outcry led to this announcement. In addition, the Department of Insurance found math errors and double-counting in the calculations Anthem Blue Cross used to determine its percentage increases.

In a statement, Anthony Wright of Health Access California said, “California ratepayers got a reprieve from outrageous rate hikes by Anthem Blue Cross of California. But more than rate relief, this withdrawal of the rate hike proposals show why we need regulators to have active oversight over the insurance industry.” The rate review in California is quite limited but still was able to ferret out errors in Anthem Blue Cross’ request. Legitimate rate review at the state or federal levels would provide more consumer protection.

There is a bill introduced by Dianne Feinstein to create a federal Health Insurance Rate Authority, with oversight and the ability to reject rate hikes of this nature. For now, the threat of such legislation is keeping companies like Anthem Blue Cross at bay.

UPDATE: Health and Human Services Secretary Kathleen Sebelius has now released a statement on this:

“Today’s announcement is good news for the more than 800,000 Californians who could have been hit with massive rate increases, and gives them some much-needed temporary relief. Since these rate hikes were first announced, I have heard from countless Americans who have been stretched to the limit by high health insurance premiums. This result was achieved because those who oversee the insurance industry on the state and federal levels heard these voices, held investigations, and demanded action.

The Affordable Care Act will ensure that people across this country have access to the affordable, quality care they deserve. As we implement this law, our Department, and especially our new Office of Consumer Information and Insurance Oversight, will closely monitor the industry, and we will not hesitate to act to prevent exorbitant premium hikes.”

Well, they can’t exactly act to prevent premium hikes – they have little authority in that area at the federal level – but they can raise the pressure, which they certainly have been doing of late. The decisions by the insurance industry on rescissions and this rate hike withdrawal are a testament to that. However, future Administrations may not be so insistent on behalf of consumers. And there’s plenty of reason to believe that the industry is playing possum at the moment.