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 plans to increase 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 new rates, to give an independent actuary time to verify whether the increases are 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 rate changes, and she suggested that the proposed increases show why the United States needs health reform.
Brian Sassi, president of the consumer business unit at WellPoint, has written Sebelius to tell her that WellPoint's profit margins in California are a little lower than the profit margins of competitors in the state.
Anthem earned $12.62 per member per month in 2008, compared with an average of $18.45 per member per month at one nonprofit competitor and $13.22 per member per month at another, Sassi writes.
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.
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 adds.
Overall health insurance rates are increasing because of factors such as increases in provider prices and the aging of the population, but the recession has led to far more rapid increases in the California individual health insurance market, Sassi writes.
The individuals who are choosing to continue to pay for health coverage tend to be sicker than the individuals who drop coverage, and the individuals who stick with low-deductible products, rather than shifting to high-deductible products, tend to be even sicker, Sassi writes.
"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."
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.