Tuesday, February 9, 2010

Wellpoint and Their “39%” Rate Increase

Wellpoint is getting killed in the press over a “39%” rate increase for their individual health insurance block in California.

HHS Secretary Sebelius has pointed to the Wellpoint individual rate increases demanding an explanation. The President even brought it up in his interview on Sunday. At a time Democrats are fond of calling insurance executives “villains” this story just adds more fuel to the fire.

No less than five reporters have called me in the last day asking me to explain it all.

Falling back on my industry experience it is probable:
  • The “39%” headline is anecdotally the biggest increase the press has found—the average is probably less albeit in the high 20% range.
  • This is likely driven by a combination of increasing medical cost trend, a bad economy, and anti-selection as healthier people disproportionately drop their coverage leaving a sicker group in the pool.
  • The rate increase is probably “defensible,” at least actuarially, based upon the actual experience in that block.
When the day is done this probably says more about why systemic health care reform is so critical than about any one company’s behavior. Last week we heard national health care spending skyrocketed to 17.3% of the economy. This is a real life example of what that macroeconomic statistic really means.

But I am not about to defend Wellpoint having been burned once. A few years ago Lisa Girion of the Los Angeles Times called me to say Wellpoint was retroactively rescinding health insurance policies for inadvertent and immaterial mistakes people had made on their health insurance applications. Falling back on my years of industry experience, I said that couldn’t be true—only the sleazy insurers pulled that sort of thing, Blue Cross of California would never do that.

Of course, Lisa was right and it was the beginning of the California rescission controversy. Not what I would call the best example of public relations at a time the country was debating the industry’s future.

So, what Wellpoint needs to do, and do yesterday, about these increases is to be transparent. Put all of the facts on the table.

Is this another symptom of a health care system run amuck or the actions of a “villainous” insurance company?

Just what is it that Wellpoint is waiting for?

****

Update

Perhaps this is what they were waiting for. Here's what happens when you stand there like a deer in the headlights and let events take over.

From the LA Times today:
Congress opened an investigation Tuesday into Anthem Blue Cross' rate increases in California as President Obama cited the company's premium hikes -- some as high as 39% -- in his bid to pass national healthcare legislation.

The House Committee on Energy and Commerce and its Subcommittee on Oversight and Investigations announced they are examining the increases, which are set to take effect March 1. Anthem is the state's largest for-profit insurer and a unit of Indianapolis health insurance giant Wellpoint Inc.

Committee Chairman Rep. Henry Waxman (D-Beverly Hills) and subcommittee Chairman Rep. Bart Stupak (D-Mich) asked WellPoint's chief executive, Angela F. Braly, to appear at a Feb. 24 hearing of the subcommittee in Washington. They requested that she provide a detailed explanation of the reasons for the rate increases, which have enraged policyholders.
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