Anthem Blue Cross’ Rate Hike Alibi, State And National Lawmaker Options
Yesterday, Anthem Blue Cross sent a letter blaming their proposed 39% rate hike for California subscribers in the individual market on the sluggish economy and the changing demographics of their risk pool.
Financial woes have pushed healthier people to drop coverage or buy cheaper plans, the company argued to Sebelius, who had demanded an explanation this week for the company’s decision to raise premiums by as much as 39 percent. As a result of losing those customers and holding on to sicker ones, the insurer said, its individual business in California operated at a loss during 2009 and an increase in rates would cover the anticipated shortfall this year.
“While this dynamic always exists, in a challenging economy it becomes more prevalent as individuals who are paying for coverage without a government or employer subsidy must choose to continue coverage or use the money for other necessities,” wrote Brian A. Sassi, president and CEO of the consumer business unit at WellPoint, Anthem’s parent company.
At the same time, medical prices are rising faster than inflation. People are also using more health services, “driven largely by an aging population, a lifestyle that results in chronic disease, new treatments, and more intensive diagnostic testing,” wrote Sassi.
Needless to say, Health and Human Services Secretary Kathleen Sebelius rejected the argument, citing the record profits from the parent company of Anthem Blue Cross, WellPoint ($2.7 billion last quarter alone). A recent report by Health Care For America Now similarly showed health insurers making record profits while dropping millions from their rolls.
But how much of this is really true? I asked Anthony Wright of Health Access, one of the leading consumer health advocacy organizations in California, about Anthem Blue Cross’ claims. He said there is some truth to their claims of what amounts to an “adverse selection death spiral” – when healthy customers remove themselves from a risk pool, the costs to maintain the sicker customers who stay does jump. The death spiral is real, Wright said, but it’s “often overblown by insurers to justify bad public policy.”
In this case, Wright estimates that there’s been a decrease in the California individual market in the range of 4-7% of total customers. That doesn’t seem like it would justify a 39% rate hike even if every one of those customers who dropped coverage was healthy. HHS Secretary Sebelius backed this up in her statement, saying “High health care costs alone cannot account for a premium increase that is 10 times higher than national health spending growth.”
Moreover, Wright said, Anthem Blue Cross’ argument merely “points to the dramatic need for health care reform,” an argument Robert Reich reiterated earlier this week. If the individual market is becoming so pricey that insurers need to raise their rates by 39% just to keep up, then that’s clear evidence of a completely broken system. Wright, who supports health care reform, said that subsidies for lower-income individuals to purchase coverage, cut off at a certain level of affordability, would remedy the problem Anthem is relating here. Further, rate regulation and rate review – a version of which is in the health care bills in Congress, though Wright said this could be stronger – would allow these types of egregious increases to be questioned. “Those getting hammered are those in individual market, who have no market share, and who health reform could help,” Wright said.
When asked what lawmakers could do, at the state and national level, to prevent this rate increase, which goes into effect March 1, Wright replied, “Very little, and that’s the entire point. At the moment we’re debating what should be the rules of the road, Anthem Blue Cross is showing why we need stronger rules.”
In addition to Secretary Sebelius, the House Energy and Commerce Committee has scheduled a hearing on this rate increase, as has the Health Committee in the California State Assembly. And Steve Poizner, the state Insurance Commissioner, has asked that Anthem Blue Cross delay the increase until an independent actuary can see whether it complies with existing insurance rules.
Wright found this point telling. The rule in question is the medical loss ratio, the percentage of premiums which an insurer must spend on medical care. California has a minimum MLR requirement of 70%. But there isn’t a set standard between the two agencies which regulate health insurance: the state Department of Insurance and the state Department of Managed Care. And without even rates across communities, it’s hard to even make the MLR calculation effectively. “The fact that the DOI is going to an outside regulator shows that they do not have the expertise in-house. I suspect that’s true across the country,” Wright said.
One thing being lost in this controversy, Wright said, is that Anthem Blue Cross didn’t just announce a 39% increase, but they left open the possibility for mid-year increases, which is fairly unprecedented in California. “You don’t even have security year-to-year anymore. This is truly getting us into the Wild Wild West.”
Wright’s coalition Health Access has been documenting the travails of Anthem Blue Cross, a really malign player in the California insurance market, at the website Sick of Blue Cross. It details their bad consumer practices, their efforts to block health care reform, and other matters.