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.