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Lawmakers Question Whether Health Insurers Should Earn Profits

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Some members of the House Energy and Commerce Committee suggested today during a hearing that letting health insurers earn any profits during a recession might be inappropriate.

The committee’s oversight subcommittee organized the hearing to investigate reports that Anthem Blue Cross of California, a unit of WellPoint Inc., Indianapolis (NYSE:WLP), plans to increase rates as much as 39% April 1 for some individual health insurance customers.

Most Democratic lawmakers at the hearing said they agree with the general principle that health insurers, like other companies, should be able to generate some profits, but they blasted efforts by WellPoint Inc., Indianapolis (NYSE:WLP) to try to set individual health insurance rates in California at a level that would permit it to generate an operating profit margin equal to about 2.5% to 5% of revenue.


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“Is it reasonable to expect that, every year, a company is going to have profits?” asked Rep. Bart Stupak, D-Mich., the chairman of the oversight subcommittee.

“The only way we’re going to make health care more affordable is to knock off those profits that are being paid for by the American citizens,” Stupak said at another point during the hearing.

The fact that WellPoint and other large health insurers have been reporting substantial profits during the recession “is why so many of us are for the public option,” Stupak added.

Another lawmaker, Rep. Betty Sutton, D-Ohio, said, “The days of health insurance companies putting profits before people are over.”

WellPoint President Angela Braly testified that WellPoint executives believed they had to increase individual health insurance rates in California substantially because of the effects of a 6% increase in physician costs, a 10% increase in hospital costs, a 13% increase in prescription drug costs, increases in utilization of medical services, and an accelerating flight of relatively healthy insureds away from plans with rich benefits, such as coverage for expensive, brand name prescription drugs.

Originally, WellPoint asked for a 25% average increase for individual policies, and executives there believed a 25% increase would leave some room for error. But claims experience deteriorated toward the end of the year, and WellPoint ended up losing money on individual health insurance operations in California, according to Cynthia Miller, WellPoint’s chief actuary.

“Insurers are among the least profitable parts of the health care system,” Braly said. “We’re the tail on the elephant, and we need to address the elephant.”

House Energy and Commerce Chairman Henry Waxman, D-Calif., suggested that internal WellPoint documents, such as e-mails, show that WellPoint pushed for large funding increases this year partly to create a “cushion” for use in negotiations with California insurance regulators, and partly to pay for profits, inflated executives salaries, and retreats at exclusive resorts.

“You’re raising rates far above what’s necessary,” Waxman said. He displayed an excerpt from a memo indicating that the medical loss ratio for first-year WellPoint plan members had increased to 65%, from 50%, in just 5 years because of slowdown in efforts to rescind the policies of new members who turned out to be pregnant or suffering from health problems not described on the application for coverage.

Braly told lawmakers that WellPoint has no interest in seeing members drop their health coverage.

“We want to have that customer, and we want that customer to have coverage,” Braly said.

Also at the hearing:

- Rep. Michael Burgess, R-Texas, a medical doctor, suggested that the size of health insurance rate increases is not relevant if the increases reflect increases in claims risk.

“Why does profit matter if the actuaries have done their work?” Burgess asked.

But Burgess said he agrees with Democrats about the need for some changes in the health insurance system, such as an end to preexisting condition exclusions and lifetime benefits caps.

Burgess scoffed at the idea of Congress complaining about low health insurer medical loss ratios.

“Look at our unfunded Medicare liability,” Burgess said. “That’s really where we need to be focusing. We’re not doing very well with Medicare and Medicaid.”

- Rep. Peter Welch, D-Vt., said WellPoint’s own internal analyses show that, if current conditions continue to prevail, individual health insurance will soon be so expensive that few consumers will buy it.

“The current insurance model is fundamentally broken,” Welch said.

- Rep. Eugene Green, D-Texas, complained about the $27 million that WellPoint spent on “executive retreats” in 2007 and 2008.

About 55 of the events cost more than $100,000 Green says.

One, a meeting in Arizona attended by about 780 agents and brokers, cost $3.7 million, and another event, at the Four Seasons in San Diego, attracted 360 participants cost about $1.3 million, Green reported.

“I know what my constituents’ [reaction] would be if I were at those locations,” Green said.


For more about the health reform issue, please read ACLI Attacks Obama Plan To Tax Some Annuity Income and Grassley Asks Iowa Carrier To Explain Rate Increases.