Anthem Wellpoint’s announcement that it was raising premiums up to 39% for members covered by their California individual insurance product hit at a really bad time – for Anthem.
HHS Secretary Kathleen Sibelius reaction was immediate and blunt, as she ordered a federal probe into the rate hike.
“It remains difficult to understand how a company that made $2.7 billion in the last quarter of 2009 alone can justify massive increases that will leave consumers with nothing but bad options: pay more for coverage, cut back on benefits or join the ranks of the uninsured.”
She’s right, as far as it goes. And things heated up even more last week, with the release of a report on insurance rate increases around the country.
To justify the increase, Wellpoint claimed
_ healthy customers are dropping coverage to save money while sicker ones retain it and run up medical bills
_ healthy customers also are switching to cheaper insurance options, further dinging revenue
_ some customers are moving into a higher age category that carries higher premiums
_ deductibles and co-payments haven’t gone up with inflation
_ prices for medical care are rising
_ people are using more health care, again, age is a factor
Here are the facts
1. The individual business accounts for 10% of Wellpoint’s California membership, or about 600,000 members. (other reports indicate this figure is higher, but this comes from their state filing)
2. The average rate increase will be about 25%.
3. Data from their filing with the state appears to refute Wellpoint’s claim that membership is declining, as it actually increased over the year.
4. The claim that healthier members are dropping coverage while sicker, more expensive members remain in the plan is likely valid. This is what happens when rates go up and healthier people, who have the option of joining a cheaper plan, leave while the members with pre-existing conditions who can’t find adequate, affordable coverage have to stay with their current plan.
5. Despite claims fro Sibelius et al, Wellpoint is not that profitable; while it did make $2.7 billion in Q4 2009, most of that was from the sale of their PBM division. In total Anthem (the parent company) made $4.7 billion last year on $65 billion in revenue; a 3.1% profit margin (on ongoing operations, discounting the one-time profit from the PBM sale).

And here’s the editorial view.
Health insurers are not that profitable; as an industry, net profits were 2.2% in 2008. I’ll stipulate that this is in large part due to a lack of creativity and foresight on the part of insurers, coupled with a demonstrated failure to do what they’re supposed to do – deliver good coverage at affordable prices. Most insurers are not much more than transaction processors and provider aggregators.
Another example of the insurance industry’s willingness ongoing penchant for shooting itself in the head. Health reform is clearly a highly politicized topic, yet just a couple days before the rate increase was announced, Wellpoint settled a dispute in California by agreeing to take back 2330 members they had terminated after those members had the temerity to actually submit bills for medical care.
Who could possibly have predicted the hue and cry? That a big rate increase after settling a rescission dispute would raise the ire of politicians while the nation’s debate on health care reform is still at full volume?
What does this mean for you?
Perhaps this will do the industry some good, as the focus on profits will reveal insurance companies aren’t making big bucks, and politicians will start searching for other, more meaningful areas to address.
Doubtful.