WOODLAND HILLS, Calif. (Reuters)—Health insurer WellPoint Inc. has reduced its proposed premium increase for individual policy holders in California and will delay co-pay and deductible increases until Jan. 1, 2012.

WellPoint's Anthem Blue Cross unit in Woodland Hills, Calif., has reduced its proposed rate increase to an average of 9.1% from a previous proposal amounting to an increase of 16.4%, Dave Jones, California's insurance commissioner, said Monday.

The reduced rate hike will save about $40 million for about 600,000 individual and family policyholders in the state, Mr. Jones said.

The health insurer will postpone the rate hike to July 1 from a previously proposed April 1, and it will delay increases in deductible and co-pays until Jan. 1, 2012.

Indianapolis-based WellPoint confirmed it agreed to lower its increase, and said that about 80,000 Californians were already going to see rate decreases from the original rate filing.

"We are pleased with the resolution of this matter, but feel all stakeholders in the healthcare market in the state must do more to control the unrelenting rise of underlying healthcare costs," Pam Kehaly, president of Anthem Blue Cross, said in a statement.

The company, which had already warned investors in January it would see a loss in the business this year, said the rate decision would not impact its 2011 earnings forecast. Shares of WellPoint closed up 0.7% at $67.09.

WellPoint's proposed rate increases in California last year set off a national debate over the spiraling cost of healthcare coverage that Democrats seized on to build momentum for the healthcare overhaul law.

The largest U.S. health insurer by membership posted a $110 million loss in its California individual business last year. WellPoint expects a smaller loss in the business this year, a company spokeswoman said on Monday, reiterating the projection the insurer gave in January.

WellPoint said its original rate filing was for a 9.8% average premium increase. However, the California regulator calculated that to equate to 16.4%, when accounting for higher co-payment and deductible levels, among other factors.

Mr. Jones said that the matter underscores the need for him to be given legal authority to reject excessive rate hikes.

"I am asking state legislators to give me that authority," he said. "Without it, consumers remain at their mercy."

Peter Costa, an analyst with Wells Fargo, said WellPoint would likely be able to buy back more shares to make up for any potential earnings-per-share hit from the lower increase.

"We believe this is an improvement for WellPoint from its prior problems in California, stemming back to the denied rate increase with a calculation error that helped push health reform through Congress," Mr. Costa said in a research note.