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Health CEOs: Rates Are Driven By Costs

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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.”


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