Empty threats–Agencies probably can’t stop Anthem rate increase

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By Consumers Union on Friday, February 12th, 2010

Many Californians facing the outrageously high premium hikes that Anthem Blue Cross of California plans to impose on March 1 will have nowhere to turn for affordable, quality health insurance. According to news reports, Anthem customers will soon see increases as high as 39%, and fine print gives Anthem the right to raise rates again later this year.

Mark Weiss, a 63-year-old podiatrist, told the Los Angeles Times that the premium for himself and his wife will jump to $27,336 per year from $20,184. “I think it’s just unconscionable,” Weiss told the newspaper.

Those who can’t find alternative coverage, perhaps because they have a pre-existing condition, will be forced to accept the higher monthly bill or drop coverage altogether. The state’s high risk pool, designed as last resort coverage for people with pre-existing conditions, has a long waiting list. Others may have to cut benefits and accept higher out-of-pocket costs.

The rate hikes are particularly noxious in light of parent company Wellpoint’s recent announcement of big fourth quarter profits—$2.74 billion. The big profits came mainly on the sale of the company’s drug benefit subsidiary, but even without that sale Wellpoint isn’t exactly losing money. Today’s report on the profits of the top five health insurers (Wellpoint is number 1) finds them all enjoying increased profits after raising rates and shedding customers. None were losing money before. How much profit is enough profit when lives are at stake?

California regulators will be looking at Anthem closely in the coming weeks to see how the company justifies the huge rate hikes, although in truth they have no authority to deny rate increases as long as some very bare minimum standards are met. Health and Human Services Secretary Kathleen Sebelius demanded that Anthem explain the increase, and a Congressional committee scheduled a hearing to investigate. But these folks don’t have much authority either.

Individual policies in California are only expected to pay 70% of premiums in medical costs and the calculations are murky. Companies are welcome to keep that other 30% to pay marketing and administrative expenses and to send profits up to the parent’s investors. Because a rate increase (there was one last year too) tends to drive off the healthiest people who can find cheaper alternatives, it’s pretty easy for a company actuary to show that they need the higher rates because they will soon have fewer and sicker people.

If Congress ever passes the health reform proposals now on the table, insurers will have to spend a lot more of your premium dollar on you, and less on everything else. And we’ve suggested some ways to tighten up the insurance rate protections that should be prioritized in the final negotiations. These kind of reforms will make a big difference–and Congress better get a move on because people are losing coverage right now!

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