WellPoint rate hike proposal ignites second political firestorm
■ After California finds errors in the company's rate request, calls come for other states to examine the insurer's supporting information for premium increases.
By Bob Cook — Posted May 17, 2010
Following a state review in California that found math errors behind Anthem Blue Cross' infamous hike of up to 39% for individual policies, Dept. of Health and Human Services Secretary Kathleen Sebelius is asking other states to take another look at the most recent premium rate increases by other WellPoint-owned plans.
On May 4, Sebelius sent a letter to state insurance commissioners and governors calling for inquiries into the data WellPoint used in requesting rate hikes. "I urge that, to the extent you have authority to do so, you re-examine any WellPoint rate increases in your state to determine whether any mistaken assumptions similar to those made in California were made in your state," she wrote.
The previous week, Anthem, WellPoint's plan in California, withdrew a planned rate increase, scheduled to take effect May 1, after an independent actuary commissioned by the California Dept. of Insurance found "numerous errors" in how Anthem calculated its rate increases. The full review was released May 5.
As a result, the report said, many of Anthem's individual products were out of compliance with a mandated minimum medical-loss ratio -- the percentage of premium dollars spent on care -- of 70%. The report said Anthem could cut its average rate hike across all individual plans from 25.4% to 15.2% and still meet the 70% medical-loss ratio threshold.
WellPoint said it again would delay any rate hike, which it did once, from March 1 to May 1, after a political backlash against the 39% maximum increase. The company said it would resubmit rates later in May.
A bill is making its way through the California Legislature that would require state approval for health insurance rate hikes. For now WellPoint does not need such permission. As of Sept. 23, under the health system reform law, federal regulators would be allowed to reject rate increases deemed unreasonable, and insurers' individual plans must have a minimum medical-loss ratio of 80%.
The original announcement of Anthem's 39% rate hike was widely viewed as reigniting the fire for the late-March passage of the health system reform measure, particularly because Sebelius and President Obama used it as evidence of how the health system was not working.
Obama mentioned Anthem's withdrawal and Sebelius' letter during his radio and Internet address on May 8, in which he focused on what he saw as immediate triumphs of health system reform: "For too long we've been held hostage to an insurance industry that jacks up premiums and drops coverage as they please. But those days are finally coming to an end."
A May 5 memo from WellPoint CEO Angela Braly, obtained by The Wall Street Journal, said the company is again conscious that its rate hike problems will obscure insurers' own political message: that underlying medical costs are to blame for spiraling insurance rates.
"Premium costs are going up because medical costs are going up, and in many states all the focus has been on rising premiums, and largely ignored is the rising cost of medical care," Robert Zirkelbach, spokesman for America's Health Insurance Plans, the trade group representing insurers, told American Medical News.
In a May 6 article, the Journal reported Braly's memo stating that third-party reviewers will go over WellPoint's 2010 rates to figure out what caused the mistakes in California. The memo said: "We have to be sure that the processes we use and the work we produce are reliable and accurate, so they do not in any way distract from the real challenges facing us -- the unrelenting increase in the cost of health care in America."
Meanwhile, on May 5, California Insurance Commissioner Steve Poizner, upon release of the full, 145-page report into Anthem's hike, ordered his department to examine the accuracy of the firm's claims payment systems and data collection. "I will not allow insurers to inflate their rates based on faulty systems or inaccurate data," Poizner said in a statement.
Also that day, U.S. Sen. Dianne Feinstein (D, Calif.) called for congressional hearings into the WellPoint errors. She said she is not convinced they were accidental, though the report commissioned by her state's insurance department expressed no opinion on the accuracy of Anthem's data, nor was it "aware of any effort" to mislead regulators.
Sebelius -- who first sent a letter to WellPoint in February asking it to justify its California increases -- did not ascribe any ill will on the part of the company in her recent letter to insurance commissioners and governors. However, she said states should use any authority they have to review WellPoint's rates. She noted that $250 million is available, thanks to the health system reform law, to help states pay for such a review.
Sebelius also encouraged states that do not require prior regulatory approval before a health insurer hikes premiums to work on getting that authority. Only about half of states have power over rate increases.
At this article's deadline, it was unclear how states would respond to Sebelius' request to re-examine WellPoint's rates. But the governor in WellPoint's headquarters state of Indiana released a statement making it clear his state would do no such thing.
Referring to health system reform legislation, Mitch Daniels, a Republican, said: "When we feel the need for advice about health care costs, we won't start with the people who just passed this disastrously expensive and backward federal legislation."
In Connecticut, independent of Sebelius' letter, Attorney General Richard Blumenthal and Kevin Lembo of the state Office of the Healthcare Advocate asked Gov. M. Jodi Rell to seek a review of a recent average 16.5% premium hike. The increase was approved by the state's insurance department for Anthem Blue Cross and Blue Shield individual plans.
Connecticut Insurance Commissioner Thomas Sullivan directed his staff to do another review. He said his department already had done an exhaustive review in summer 2009 to cut Anthem's rate requests, which ranged from 21% to 30%.