Insurer WellPoint says economy, medical costs behind Calif. rate hikes; Sebelius unconvinced

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WellPoint price hike defense fails to satisfy feds

INDIANAPOLIS — Health insurer WellPoint is blaming the Great Recession and rising medical costs for its planned 39 percent rate increase for some California customers of its Anthem Blue Cross plan.

But Health and Human Services Secretary Kathleen Sebelius isn’t buying the explanation proffered in a letter delivered to her Thursday.

Sebelius said “it remains difficult to understand” how premium increases of that size can be justified when WellPoint Inc. reported a $4.75 billion profit in the last quarter of 2009. She also noted that the premium increases are 10 times higher than the increase in national health care costs.

President Barack Obama has seized on the premium hikes in California as an ill omen of what will happen around the country if lawmakers fail to enact health care overhaul legislation. “If we don’t act, this is just a preview of coming attractions,” he said at a press conference Tuesday.

Brian Sassi, the head of WellPoint’s consumer business unit, said in the letter to Sebelius that because of the weak economy, healthy people increasingly are dropping coverage or buying cheaper plans. That reduces the premium revenue available to cover claims from sicker customers who are keeping their coverage.

The result was a 2009 loss for the unit that sells individual policies to people who don’t get insurance through their employers, he said. Higher rates for this group, which accounts for about 10 percent of Anthem’s eight million customers in California, are needed to cover the shortfall expected from the continuation of that trend, according to the letter.

“When the healthy leave and the sick stay, that is going to dramatically drive up costs,” Sassi said in an interview. He declined to specify the size of the unit’s loss.

Affected customers can choose plans with lower premiums but higher out-of-pocket costs, he said.

Sassi told Sebelius that insurance costs also continue to rise because medical prices are increasing faster than inflation, and people are using more health care. That use increase is driven by an aging population, new treatments and “more intensive diagnostic testing,” he wrote.

Sebelius ordered a federal inquiry earlier this week after the size of proposed premium increases for individual policies was widely publicized. A congressional committee also has asked for information on the increases and requested testimony from WellPoint CEO Angela Braly at a Feb. 24 hearing.

WellPoint is the largest publicly traded health insurer based on membership and is a dominant player in the individual insurance market in California. Based in Indianapolis, the company runs Blue Cross and Blue Shield plans in 14 states and Unicare plans in several others.

WellPoint as a whole made a profit of $4.75 billion in 2009, though $2 billion of that came from the sale of a business.

Rates for individual health insurance policies tend to rise much faster than those of employer-sponsored coverage.

The pool of customers is more stable for group health insurance. In the individual market, healthy people are more inclined to drop coverage when they see big price hikes because they don’t have employer help paying for it, said Robert Laszewski, a health care consultant and former insurance executive. That leaves behind sicker customers who stay because they still need coverage.

Sassi said as much as one-third of their individual insurance customers leave every year. That volatility can lead to big changes in the mix of people covered and rate swings. Administrative costs also can be higher for individual lines because the insurer has to sell each policy individually instead of to a larger group.

Sassi said a minority of Anthem Blue Cross’s 800,000 individual policy holders in California will see rate increases as high as 39 percent. Most premiums will rise around 24 percent when the rates take effect March 1.

The Democratic health care legislation now stuck in Congress is largely aimed at addressing the problems of small businesses and people buying insurance on their own.

The bills would set up big new insurance pools called exchanges that would promote competition. In many states the market for individual health insurance is currently controlled by one or two dominant insurers.

Premiums for the new coverage wouldn’t necessarily be cheaper. In order to participate in the exchanges, insurers would have to offer more comprehensive benefits than are often available now in the individual market. But federal subsidies would be available to help offset the cost for moderate income people.

Rep. Chris Van Hollen, D-Md., a member of the House leadership, said he thinks the WellPoint case should send a powerful message to lawmakers wavering about what to do on health care overhaul. “The results of doing nothing will be skyrocketing increases in premiums,” he said.

The price shock could help Obama make his case that Republicans need to come to the table on health care. GOP leaders are going reluctantly to the Feb. 25 health care summit convened by the president. It’s unclear whether they can find common ground, since Republicans want to start over from scratch, and Obama is unwilling to give up on the goals embodied in the Democratic bills.

Alonso-Zaldivar reported from Washington.

WellPoint’s letter: www.wellpoint.com/pdf/SebeliusLetter02112010.pdf