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Anthem Blue Cross Emails Reveal Profit Motive For Giant Rate Hike

Today is the big Anthem Blue Cross hearing on Capitol Hill, and House Energy and Commerce Committee Chair Henry Waxman kicked them off with a bombshell:

House Energy and Commerce Chairman Henry Waxman (D., Calif.) on Wednesday assailed WellPoint Inc. for high premium increases for its Anthem Blue Cross plans in California, arguing that company documents suggest the increases were driven by profit-seeking […]

Mr. Waxman, at a House Energy and Commerce Subcommittee on Oversight and Investigations hearing on the increases, presented documents that he said “tell a story not about costs, but about profits.”

A subcommittee investigation unearthed a company email that said premium increases would “return [the California market] to target profit of 7 percent.”

Other documents showed that the company sought higher average rate increases than company officials believed that California insurance regulators would allow, as “a cushion” to “allow for negotiations.”

Mr. Waxman also decried the company’s level of executive compensation, noting that 39 WellPoint executives were paid $1 million or more in 2008.

As Anthony Wright notes, the actual increase from Anthem Blue Cross was higher than the targeted increase that would yield that 7% profit.

This comes a day after Anthem Blue Cross execs were grilled at a hearing in Sacramento by state legislators, where one blatantly lied about their profit targets:

The panel’s chair, Assemblyman Dave Jones, D-Sacramento, expressed skepticism during testy questioning that at times provoked awkward silences by the company’s president, Leslie Margolin.

“How much profit is enough?” Jones asked. Margolin paused uncomfortably.

After collecting her composure, she said that her company, the state’s largest for-profit health insurer, had no interest in profits beyond what she said were slim margins of 2 to 5 percent.

We now know by the company’s own emails that they sought a 7% profit.

Frankly, this is more disingenuous than illegal. California’s only real regulation in this area is a 70% medical loss ratio, and if Anthem Blue Cross can show that, there’s nothing stopping them from hiking rates. Anthem Blue Cross’ parent company, WellPoint, has sought double-digit rate hikes in 11 states just this year. WellPoint holds a fiduciary duty to maximize profits, so I don’t know why anyone would expect them to be magnanimous.

There are a few ways to stop giant rate hikes from insurers: 1) ban them completely from the market; 2) lower health spending costs dramatically so they can profit by offering lower premiums; 3) broaden the risk pool so the healthy pay for the costs of the sick. You can ask yourself if the reforms to date actually do any of this.

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David Dayen

David Dayen