U.S. Health and Human Services Secretary Kathleen Sebelius made headlines yesterday, calling on Anthem Blue Cross to justify its reason for boosting rates by 39 percent on some individual policy holders in California.
In a scathing letter to the Indianapolis-based company, Sebelius chided the health insurer for increasing premiums “15 times faster than inflation.”
I believe Anthem Blue Cross has a responsibility to provide a detailed justification for these rate increases to the public. Additionally, you should make public information on the percent of your individual market premiums that is used for medical care versus the percent that is used for administrative costs.
Policy holders in the individual market deserve to know if their premium increases would be invested in better medical care or insurance company overhead costs like salaries, profits, and advertising.
What could be driving the steep rate hike? I took a spin around the Web in search of an answer. First stop: Anthem Blue Cross suggested that it would boost rates a few months ago.
A report by the Blue Cross Blue Shield Association predicted sky-rocketing rates if there wasn’t a strong “individual mandate” in federal health reform legislation. Such a requirement would force consumers to carry health insurance, according to the Hill, a Washington, D.C., political newspaper.
Premiums will rise up to 50 percent for individual policies and 19 percent for small group plans if health care reform passes, a new report released by a major health industry trade group claims. …
‘Requiring insurers to guarantee issue coverage regardless of pre-existing conditions — without an effective mandate — means that people can wait to purchase coverage until they need it, causing premiums to increase for most new purchasers,’ the report claims.
The Anthem Blue Cross letter to consumers, though, comes as lawmakers are scrambling to revive a health reform package. It is unclear whether a groundswell of resistance against the requirement for individuals to carry insurance is driving the cost increase.
Even before health reform was in the daily news, Blue Cross encountered some costly push-back from California regulators. Insurance Commissioner Steve Poizner announced a year ago that his department and the company agreed that it would offer “new health coverage” to 2,300 consumers whose policies were improperly cut off, or “rescinded” between 2004 and 2008.
Blue Cross will also reimburse these consumers for out-of-pocket medical expenses, estimated to be $14 million, and pay a $1 million fine. The company will also implement significant changes in its underwriting and claims practices. …
As part of the settlement, Blue Cross has agreed to make significant changes to its application forms, underwriting process, agent training, notification to consumers and providers of any investigation regarding information in the application and oversight of its claims handling.
Additionally, the state’s Department of Managed Healthcare issued a $10 million fine after the insurer dropped about 1,770 HMO patients’ coverage, the Los Angeles Times reported.
Did those costs drive the rate hike? Anthem Blue Cross’s parent company, Wellpoint, suggests otherwise in a September 2009 quarterly report to the U.S. Securities and Exchange Commission:
None of these settlements, individually or collectively, have had or are expected to have a material adverse effect on our consolidated financial condition or results of operations.
As for the true impetus behind the hefty rate increase, secretary Sebelius, for one, expects an answer soon: "At a time when health care costs are a critical threat to families as well as the nation's economy, I hope you appreciate the urgent nature of this request," Sebelius writes in her letter. "I look forward to your prompt reply."
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