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Grassley Asks Iowa Carrier To Explain Rate Increases

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The highest-ranking Republican on the Senate Finance Committee has asked a large health insurer in his home state to explain why prices for some insureds will increase as much as 22% April 1.

California regulators and federal regulators have asked executives of WellPoint Inc., Indianapolis (NYSE:WLP), to explain why it is planning to increase rates for some individual health insurance customers in California as much as 39%.

WellPoint executives have argued that a combination of a weak economy and big differences in plan designs have created a “death spiral” effect for low-deductible individual health benefits plans in California, by creating conditions that encourage all but the very sickest insureds to abandon low-deductible individual plans, or to drop health coverage altogether.

Now Sen. Charles Grassley, R-Iowa, who presides with Sen. Max Baucus, D-Mont., over the Senate Finance Committee, has written to ask John Forsyth, chairman of Wellmark Blue Cross and Blue Shield, Des Moines, Iowa, why Wellmark is planning to increase rates for 80,000 of its 1.8 million customers by an average of 18% starting April 1.

Rates for some insureds are set to go up 22%.

“This is almost twice as much as last year’s 9.3% increase,” Grassley writes.

The Office of the Actuary at the federal Centers for Medicare and Medicaid Services recently reported that U.S. health care spending increased by just 5.7% in 2009, Grassley writes.

“I understand that the individual and small group health insurance markets face unique challenges regarding adverse selection and that the recent economic downturn has likely exacerbated these challenges,” Grassley writes. “However, I also believe Iowans deserve a clear explanation for why premiums are increasing at a much faster rate than national health care spending.”

Grassley has asked Forsyth to describe the factors taken into consideration when Wellmark set 2010 rates, to provide a copy of any independent actuarial analysis of the 2010 rates, and to report on reserve levels, and any use of reserves to mitigate rate increases.

Wellmark executives said in a commentary released Friday that the company has been increasing rates because of factors such as rising medical prices, increased utilization, the cost of new medical technology, and legislative mandates.

Mandates account for about 10% to 15% of health insurance premiums, the company says.

“Increases don’t boost Wellmark profits,” the company says.

From 2007 to 2009, Wellmark lost almost 1 cent for every dollar of fully insured business that it wrote, the company says.

In 2009, insured Wellmark plans lost 2.8 cents for every dollar in premium revenue, the company says.

That means that “premiums were not sufficient enough to cover medical costs for our members,” the company says.