- By ALLISON BELL
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