Author Archive | John Barrett

Health CEOs: Rates Are Driven By Costs

WASHINGTON—Health insurance premiums are produced by healthcare costs, and those costs must be tackled before rates can be brought under control, health care industry CEOs said today.

They made their point at a White House meeting attended by President Obama, other administration officials and state insurance regulators at the White House.

The executives were responding to a request at the meeting by Kathleen Sebelius, secretary of the Department of Health and Human Services, to post on the Internet the justification for their requests for large rate hikes.

WellPoint Inc., Indianapolis, has been under particular scrutiny after its Anthem Blue Cross subsidiary in California recently announced plans to boost individual insurance premiums in California by as much as 39%.

These requests for high increases are aimed primarily at the small group and individual markets.

In comments made at the meetings and afterwards, the CEOs also cautioned that restraining the cost of health insurance premiums without working to control costs would affect the solvency of the companies.

Angela Braly, chairman, president and CEO of WellPoint, said during the conference call that she had told Obama “that the administration must understand that rates can’t be looked at independently from what the drivers of increases in healthcare costs are.”

“You can’t limit rate increase and not look at underlying costs,” she said. “If you don’t have the right rates, they you will also have problem with the solvency of health insurers” not only now, “but in the future.”

Braly and Stephen Hemsley, president and CEO of UnitedHealth Group Inc., Minnetonka, Minn., argued that these costs are largely created by hospitals, the pharmaceutical industry and the medical device industry, all of which have higher profit margins than the 2.2% profit earned by health insurers last year.

“We think we got those attending the meeting to acknowledge that fact,” Helmsley said in a conference call following the meeting.

Officials from Aetna Inc., Hartford, and CIGNA Corp, Philadelphia, were also at the meeting.

In a letter sent to Sebelius Wednesday, Karen Ignagni, president and CEO of America’s Health Insurance Plans, cited a recent Yahoo! Finance analysis of quarterly financial data, which found the average profit margin in the health insurance industry is 3.4%, in contrast to 11% for the entire health care sector.

At the meeting, Sebelius told the executives “that kind of rate increase is just unacceptable and unsustainable.”

She said the industry is earning “healthy profits,” a point the industry executives disputed.

During a short stay at the meeting, Obama underscored that such rate hikes can’t go on. The president has painted a bleak picture of spiraling costs and eroding coverage if Congress fails to pass his plan.

In their comments during the conference call, Bray and Helmsley took note of the proposed Federal Rate Review Board that the administration wants to set up, which would have the authority to roll back high rate increases.

“Healthcare is very local,” Helmsley said. State regulators are in the best position to “strike the appropriate balance between solvency and actuarially sound rates,” he said.

He added that state regulators are in a better position than government to focus on consumer protection.

But state regulators attending the meeting supported the idea of a Federal Rate Review Board, which they said would aim only at providing authority to state regulators who don’t have a legal mandate to reduce high rate increases.

“State regulators are best positioned to perform rate review and many of us do so with great success,” said Jane L. Cline, NAIC president and West Virginia Insurance Commissioner. “Some, however, have not been given the authority by their state legislatures to review and deny unjustified increases. We believe that a federal backstop could help encourage these legislatures to provide that authority.”

WASHINGTON—Health insurance premiums are produced by healthcare costs, and those costs must be tackled before rates can be brought under control, health care industry CEOs said today.

They made their point at a White House meeting attended by President Obama, other administration officials and state insurance regulators at the White House.

The executives were responding to a request at the meeting by Kathleen Sebelius, secretary of the Department of Health and Human Services, to post on the Internet the justification for their requests for large rate hikes.

WellPoint Inc., Indianapolis, has been under particular scrutiny after its Anthem Blue Cross subsidiary in California recently announced plans to boost individual insurance premiums in California by as much as 39%.

These requests for high increases are aimed primarily at the small group and individual markets.

In comments made at the meetings and afterwards, the CEOs also cautioned that restraining the cost of health insurance premiums without working to control costs would affect the solvency of the companies.

Angela Braly, chairman, president and CEO of WellPoint, said during the conference call that she had told Obama “that the administration must understand that rates can’t be looked at independently from what the drivers of increases in healthcare costs are.”

“You can’t limit rate increase and not look at underlying costs,” she said. “If you don’t have the right rates, they you will also have problem with the solvency of health insurers” not only now, “but in the future.”

Braly and Stephen Hemsley, president and CEO of UnitedHealth Group Inc., Minnetonka, Minn., argued that these costs are largely created by hospitals, the pharmaceutical industry and the medical device industry, all of which have higher profit margins than the 2.2% profit earned by health insurers last year.

“We think we got those attending the meeting to acknowledge that fact,” Helmsley said in a conference call following the meeting.

Officials from Aetna Inc., Hartford, and CIGNA Corp, Philadelphia, were also at the meeting.

In a letter sent to Sebelius Wednesday, Karen Ignagni, president and CEO of America’s Health Insurance Plans, cited a recent Yahoo! Finance analysis of quarterly financial data, which found the average profit margin in the health insurance industry is 3.4%, in contrast to 11% for the entire health care sector.

At the meeting, Sebelius told the executives “that kind of rate increase is just unacceptable and unsustainable.”

She said the industry is earning “healthy profits,” a point the industry executives disputed.

During a short stay at the meeting, Obama underscored that such rate hikes can’t go on. The president has painted a bleak picture of spiraling costs and eroding coverage if Congress fails to pass his plan.

In their comments during the conference call, Bray and Helmsley took note of the proposed Federal Rate Review Board that the administration wants to set up, which would have the authority to roll back high rate increases.

“Healthcare is very local,” Helmsley said. State regulators are in the best position to “strike the appropriate balance between solvency and actuarially sound rates,” he said.

He added that state regulators are in a better position than government to focus on consumer protection.

But state regulators attending the meeting supported the idea of a Federal Rate Review Board, which they said would aim only at providing authority to state regulators who don’t have a legal mandate to reduce high rate increases.

“State regulators are best positioned to perform rate review and many of us do so with great success,” said Jane L. Cline, NAIC president and West Virginia Insurance Commissioner. “Some, however, have not been given the authority by their state legislatures to review and deny unjustified increases. We believe that a federal backstop could help encourage these legislatures to provide that authority.”

0

HEALTH LEADERS CRITICIZE OBAMA PLAN TO CREATE FEDERAL AUTHORITY OVER HEALTH INSURANCE RATES

Kaiser Health News –

Feb. 23: State insurance regulators said President Barack Obama goes too far with his proposal Monday to give the federal government new power to reject health insurance rate increases.

Three veteran state insurance commissioners said in interviews that states are in a better position to judge insurers’ premium proposals. But two of the commissioners, Sandy Praeger of Kansas and Kim Holland of Oklahoma, said they’d welcome federal advisory help. Pennsylvania’s commissioner, Joel Ario, said the federal government could also help set standards for states to use in reviewing insurance rates.

States regulate health insurance, although they vary widely on the minimum level of coverage they require of insurers and financial solvency requirements. More than half the states allow insurers to implement rate increases without first obtaining state approval.

Ario said if states and the federal government try to share the responsibility it could pose a problem because it would be unclear who has the ultimate authority. “It could end up as a ‘who’s on first and what’s on second’ problem,” he said.

He was appointed by Democratic Gov. Edward Rendell. Holland, a Democrat, and Praeger, a Republican and former president of the National Association of Insurance Commissioners, were both elected.

Obama’s proposal to create a Health Insurance Rate Authority was included in his 11-page health plan that attempts to merge the health bills passed by the House and Senate last year and restart legislative efforts to pass overhaul legislation. His proposal said the authority would “provide needed oversight at the federal level and help states determine how rate review will be enforced and monitor insurance market behavior.”

Under the plan, “if a rate increase is unreasonable and unjustified, health insurers must lower premiums, provide rebates, or take other actions to make premiums affordable,” the proposal said.

Obama’s plan lacked details about how the federal rate authority would work, or for how long. Under the House and Senate health bills, individual health insurance would be sold through exchanges, marketplaces that would set standards for plans and oversee rates. The president’s plan sided with the Senate version that calls for state-based exchanges instead of one large national exchange as in the House bill. The exchanges would not start until 2013.

The new federal authority goes beyond what’s contained in either the Senate or House bills. In the past two weeks, Obama administration officials have tried to build public outrage over recent insurance rate hikes in the individual health insurance market, especially a 39 percent increase sought by Anthem Blue Cross of California, the largest for-profit health insurer in that state. Last week, the insurer agreed to postpone the increases until May 1.

Efforts to pass legislation stalled a month ago after the Democrats lost their filibuster-proof majority in the Senate with the election of Massachusetts Sen. Scott Brown, a Republican.

America’s Health Insurance Plans, the health insurers’ major lobbying group, said Monday the White House is spending too much time focusing on premium increases in the individual insurance market, which affects seven percent of those with private coverage. The group said blocking rate increases doesn’t do anything to resolve their underlying cause: rising medical costs and increased use of medical services.

The Blue Cross and Blue Shield Association said, “This new agency, which creates a highly politicized federal review process, would divorce premium review from the state regulators’ responsibility of assuring that health plans have enough funds to pay future policyholder claims, potentially leading to multi-plan insolvencies across the country.”

Praeger and Holland said creating a federal rate authority would not deal with the problems driving higher premiums. “If you want to keep costs under control, it’s not about managing health care premiums,” Praeger said, “it’s about managing the underlying health care costs.”

Holland defended state regulation of insurance. “Health insurance is very localized and states already have a number of tools to monitor rates,” she said. “Overall, I think state regulators do a good job.”

0

In California, Exhibit A in Debate on Insurance

New York Times February 16, 2010

LOS ANGELES — When Bernhard Punzet opened the dreaded envelope from Anthem Blue Cross one recent Saturday, it ruined his weekend.

Although he had no known medical problems, the company was raising the premium on his individual health insurance policy by 34 percent, to $254 a month. The policy for his partner, who is 12 years older, would rise 36 percent, to $369.

“Ten percent I could have rationalized,” said Mr. Punzet, 34, a financial controller for a Los Angeles recruiting firm. “But a 34 percent increase? I don’t even have any data points for that, nothing to compare it to. I’ve never seen anything go up 34 percent.”

With health care negotiations stalled in Washington, the Obama administration is seizing on the seething fury felt by Mr. Punzet and nearly 700,000 other Anthem customers in California who have received notices of increases that average 25 percent. About a quarter of them are seeing leaps of 35 percent to 39 percent, the company said, at least four times the rate of medical inflation.

At a moment when the health care debate seemed drained of urgency, the rate increases have permitted Mr. Obama to remind Americans of what is at stake, not just for the uninsured but for those whose coverage is threatened by unregulated hyperinflation.

The spike in Anthem’s premiums, Mr. Obama warned last week, were “just a preview of coming attractions” if the country failed to overhaul its health insurance system.

But if Anthem was the whipping boy the White House needed, the confrontation has also reinforced an emerging shift of focus in Washington from the need for universal coverage to the need for serious cost control. And it brought into clear relief the deep rift between the administration and the insurance industry concerning a central question: whether such unsustainable pricing is driven by the bloodless economics of risk or a corporate culture of greed.

Recognizing a no-lose proposition when they see one, politicians in Sacramento and Washington chastised Anthem relentlessly last week, and hearings are scheduled in both capitals. On Saturday, Anthem’s parent company, WellPoint Inc. of Indianapolis, agreed to a request from California’s insurance commissioner to delay the increases by two months, to May 1, so he could determine whether they comply with loss-ratio regulations.

Health and Human Services Secretary Kathleen Sebelius challenged the company to justify its “extraordinary” rate increases and, when it did in a five-page letter, volleyed that she was not satisfied. She expressed indignation that some of Anthem’s increases would be up to 15 times the rate of inflation, and that WellPoint had earned $2.7 billion in the fourth quarter of 2009.

“Too many Americans are at the whim of private, for-profit insurance companies who are raking in billions in profits each year,” Ms. Sebelius wrote on the White House blog.

She did not mention that most of WellPoint’s fourth-quarter surge came from the one-time sale of a business unit or that Anthem lost money on the individual market in California last year, as company officials assert. California’s insurance commissioner, Steve Poizner, said Saturday that he had a “healthy skepticism” about the claim.

Although Anthem, the state’s largest for-profit insurer, has seemed outmaneuvered by the White House so far, it has tried to transform its defensive position into a teachable moment.

In statements and letters, Anthem and WellPoint have explained what the industry calls a recessionary death spiral: as unemployment and declining wages prompt healthy people to drop their insurance, the remaining risk pool becomes sicker and more expensive to insure, which in turn forces up prices and pushes more people out of the market.

A study released this week found that the five largest health insurance companies collectively lost 2.7 million customers last year, including 1.4 million by WellPoint. Yet they reported record profits of $12.2 billion.

The death spiral “highlights why we need sustainable health care reform to manage the steadily rising costs of hospitals, drugs and doctors,” Anthem, which is based in Los Angeles, said in a statement.

To many in recession-racked California, however, the Obama administration’s populist rhetoric has sounded pitch perfect.

“As a trial lawyer, I’d make it Exhibit A,” said Joshua C. Needle, 57, of Santa Monica, whose premium is rising 33 percent. “I have no problem with profits, but they’re maximizing profits without any concern that they have a captive audience.”

Mr. Needle, like many of the 13 million Americans who buy insurance individually rather than through employers, cannot shop for a better deal because he has medical conditions like high cholesterol and glaucoma that would probably disqualify him with other carriers.

Once accepted by an insurer, consumers cannot be dropped for medical reasons. But in California, where Anthem controls more than half of the individual market, regulators have little power to prevent insurers from raising individual rates as high as the market will bear. That often forces consumers to move to less-generous policies with higher deductibles in order to hold down their costs.

Mr. Poizner, who is running for governor in the Republican primary, has hired actuaries to study whether Anthem is spending at least 70 percent of premium revenues on claims, as required by state regulations. WellPoint officials said they were confident that Anthem exceeded the threshold.

In the health care bills that have passed each chamber, but not been reconciled, Congressional Democrats would attack the cost of premiums in several ways. Everyone would be required to have health insurance, spreading risk among larger pools. Health insurance marketplaces, or exchanges, would force insurers to compete more transparently. Insurers would be prohibited from denying or canceling coverage because of medical conditions, and would be forced to spend at least 80 percent of premiums on claims.

Paradoxically, since WellPoint has lobbied vigorously against the legislation, the company argued last week that its “unfortunate but necessary” rate increases demonstrated the need for a major fix.

But the company found fault with the Democrats’ proposals, particularly what it sees as soft enforcement of a health insurance mandate that would allow millions of people to remain uninsured. Only if everyone is covered, the insurance industry argues, can it spread its risks sufficiently to stop rejecting those with pre-existing conditions.

“The reform being discussed in Washington will not do anything to address the underlying increases in costs,” said Brian A. Sassi, president of consumer business for WellPoint.

Medical costs have typically risen by 5 percent to 10 percent during each of the last five years. Mr. Poizner said he was starting to see significant increases for individual policies sold by some of Anthem’s competitors, and double-digit increases have been reported in other states.

Several insurance analysts said it was possible, but not necessarily likely, that such increases would become common, at least while the economic downturn persists. Insurance brokers in Los Angeles said they had never seen jumps of such magnitude.

“It’s more astonishment than irritation,” a Pasadena broker, John W. Barrett, said of the reaction from his customers. “Irritation was last year and the year before. Now they’re astonished.”

0

Sebelius, WellPoint Continue Battle Over California Rates

Published 2/12/2010

WellPoint Inc. (NYSE:WLP) says the cost of providing individual health insurance in California is soaring, but a federal regulator says the company should be using its national profits to hold down premium increases.

Anthem Blue Cross of California, a unit of WellPoint, Indianapolis, recently announced that it would be increasing premiums for some California individual health insurance customers by as much as 39%. The increases are set to take effect March 1.

California Insurance Commissioner Steve Poizner asked Anthem to postpone the increase, to give an independent actuary time to verify whether the increase is justified.

Kathleen Sebelius, the U.S. secretary of Health and Human Services and former Kansas insurance commissioner, wrote to ask Anthem Blue Cross executives for an explanation of the increase, and she suggested that the proposed increase shows why the United States health reform.

Now WellPoint and Sebelius have fired off new letters.

Brian Sassi, president of the consumer business unit at WellPoint, writes to Sebelius that WellPoint’s profit margins in California are a little lower the profit margins of competitors in the state.

Anthem earned $12.62 per member per month in 2008, compared with an average of $1.845 per member per month at one nonprofit competitor and $13.22 per member per month at another.

Only about 10% of Anthem’s health insurance customers in California are individual health insurance policyholders, and the proposed 39% increase that is getting most of the media attention affects a relatively small percentage of individual policyholders who insist on sticking with their current policies and will be changing age categories, Sassi writes.

“The rate changes excluding the impact of age-category changes range from a 20.4% decrease to a 34.9% increase,” Sassi writes.

Many individual insurance policyholders can reduce the effects of the proposed premiums increases by changing products, Sassi adds.

WellPoint welcomes the California Department of Insurance review of the rate increases and believes it can show why the increases are actuarially sound and necessary, Sassi writes.

“Rate increases reflect the increasing underlying medical costs in the delivery system, which are unsustainable,” Sassi writes.

Overall health insurance rates are increasing because of factors such as increases in provider prices and the aging of the population, but other factors are accounting for the rapid increases in the California individual health insurance market, Sassi writes.

When the economy is bad, only the sickest individuals choose to keep paying for individual health coverage, and that means the insureds remaining in the pool use more services, Sassi writes.

Meanwhile, Sassi writes, the healthier insureds who are keeping their coverage are migrating toward the cheaper, higher deductible policies, and that makes the risk profile of the insureds who are sticking with the lower-deductible policies look even worse.

“Other individual market health insurers are facing the same dynamics and are being forced to take similar actions,” Sassi warns.

To prevent antiselection in the individual health insurance market, WellPoint believes that Congress must require all Americans to have some kind of health coverage, provide subsidies for people who have serious trouble paying for coverage, and impose significant penalties on individuals who go without coverage, Sassi writes.

Sebelius does not discuss the state of the California insurance health insurance market in her reply, but she notes that WellPoint as a whole reported $2.7 billion in net income for the fourth quarter of 2009.

“It remains difficult to understand how a company that made $2.7 billion in the last quarter of 2009 alone can justify massive increases that will leave consumers with nothing but bad options: pay more for coverage, cut back on benefits or join the ranks of the uninsured,” Sebelius writes. “High health care costs alone cannot account for a premium increase that is 10 times higher than national health spending growth.”

The Anthem decision to raise rates demonstrates the need for reforming the health insurance system, Sebelius writes.

“Reform will end the worst insurance company practices and put doctors and patients — not insurance companies — in charge of medical decisions,” Sebelius writes. “If we fail to implement reform, insurance companies will continue to prosper while families will continue to struggle

0

COBRA Extension in the Works

Virtual Water Cooler, February 10, 2010

Bill Kenealy

Another extension to subsidies to the Consolidated Omnibus Budget Reconciliation Act (COBRA) is contained a pending jobs bill.

According to the version of the bill currently circulating around Capitol Hill, the 65% premium subsidy available to employees involuntarily terminated from Sept. 1, 2008 through Feb. 28, 2010, would be extended until May 31, 2010. However, the duration laid off workers are eligible to receive benefits remains at 15 months.

Given the nation’s continuing high unemployment rate another COBRA subsidy extension is likely to receive broad support in Congress, and key lawmakers such as Senate Majority Leader Harry Reid, (D-Nev.) and Finance Committee Chairman Max Baucus (D-Mont.) are said to be backing an extension.

0