Rate Hike Battle Escalates

Insurers Blame Rising Costs for Premium Increases

With the health reform battle grinding on, premium increases in California and other states have been held up by legislators as the latest evidence that insurers need to be reigned in. In an attempt to build support for their reform efforts, lawmakers seized on an announcement by Anthem Blue Cross, a California subsidiary of WellPoint, that its individual market premiums would increase by as much as 39% as evidence that new price controls are necessary. Insurers have defended the rate increases, arguing that they reflect the underlying growth in medical costs that should be the real target for reform.

Announced in January, Anthem’s premium increase was to go into effect on March 1, but WellPoint agreed to a request by the California Department of Insurance to postpone the increase until May 1 to give the department and an independent actuary additional time for review. The review is expected to be completed by mid-April, and Steve Poisner, California insurance commissioner, said actuaries had been instructed to ensure the proposed rates comply with state law, which requires that 70 cents of every dollar in premiums is spent on medical benefits.

Following Anthem’s announcement, healthcare reformers made rate hikes the focus of their arguments and called for new authority to regulate rates. In his radio address on February 20, President Obama was critical of rate increases across the country. “In Kansas, one insurance company raised premiums by 10% to 20% only after asking to raise them by 20% to 30%. Last year, Michigan Blue Cross Blue Shield raised rates by 22% after asking to raise them by up to 56%. And in Maine, Anthem is asking to raise rates for some folks by about 23%,” Mr. Obama said. “The bottom line is that the status quo is good for the insurance industry and bad for America.”

In testimony presented in February before the House Energy & Commerce Subcommittee on Oversight and Investigations, Angela Braly, the president and CEO of WellPoint, provided a rationale for the proposed rate hikes. Ms. Braly attributed the increase to rising healthcare costs and more healthy people opting out of the system.

“Rising healthcare costs are driven by many factors, including hospitals and other health care providers charging higher rates, new medical technology, underpayment by government programs, the growth in chronic diseases and conditions like obesity, and an aging population,” she explained. “These increases are greatly compounded when younger, healthier members drop their insurance—leaving those who most need healthcare to foot the bill.”

Ms. Braly also said that the increase requested by Anthem had been mischaracterized in the media, stating that the rate changes range from a 20.4% decrease to a 34.9% increase. Her testimony emphasized Anthem’s ongoing cooperation with the California Department of Insurance and stated that the rate changes were filed with the appropriate regulators in November 2009, are actuarially sound, and fully comply with legal requirements.

On March 8, Kathleen Sebelius, Secretary of Health and Human Services, sent a letter to the CEOs of UnitedHealth Group Inc, WellPoint Inc, Aetna Inc, Health Care Service Corporation and CIGNA HealthCare Inc calling on all of the executives to publicly justify proposed health insurance premium increases. The letter came after a meeting with these executives at the White House a week earlier.

In a March 9 posting on the White House blog, Dan Pfeiffer, communications director, said that if healthcare reform is enacted it would include controls on the percentage of premium dollars that can be spent on profits and overhead. He wrote that health insurance companies would be required to spend 80% to 85% of revenues on care.

Mr. Pfeiffer was critical of the expense of America’s Health Insurance Plans’ (AHIP) 2010 National Policy Forum, taking place that day in Washington DC. “Right after the insurance companies announced huge rate increases for families across the country, they gathered at the luxurious Ritz Carlton in Washington to announce that they are spending $1 million on ads to defeat health reform. That money could probably be better spent keeping rates down for customers.”

On the first day of AHIP’s 2-day policy meeting, the trade group launched an ad campaign defending the role of insurers. The Web site for AHIP’s advocacy initiative, The Campaign for an American Solution, says the campaign “puts into perspective health insurance companies’ contribution to rising national healthcare spending and urges Washington to focus on the true drivers of rising healthcare costs.”

The theme of the ad is the healthcare cost pie, and AHIP asserts that health insurance is “one of the smallest slices,” accounting for “only 4% of all healthcare spending.” The ad concludes with a call for reform that addresses the whole spectrum of healthcare costs, “If Washington wants to make healthcare more affordable, they need to look at the whole healthcare pie, not just a slice.”

Speaking at the AHIP meeting, Ms. Sebelius told insurers they face a choice between opposing reform for short-term benefit and supporting reform in the name of long-term sustainability, adding that it would be better for them to support the president’s proposal. “You can choose to take the millions of dollars you have stored away for your next round of ads to kill meaningful reform, and use them to start giving Americans some relief from their skyrocketing premiums,” she said. “Instead of spending your energy attacking the parts of the president’s proposal you don’t like, you can use it to strengthen the parts you do.”

In a statement on premium increases, AHIP president and CEO Karen Ignagni excoriated lawmakers for scapegoating health insurers. “It’s time to stop the politics of vilification and focus on what Americans need most: real healthcare reform that addresses the serious and urgent problems facing our nation,” Ms. Ignagni said.—Charles Boersig