Calif. insurer's rate increases draw attention of federal government

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By Alec MacGillis
Monday, February 8, 2010; 4:55 PM

President Obama's secretary of health and human services fired off a sharply worded letter to a California insurer Monday, demanding to know why it is raising rates for individual policyholders by as much as 39 percent.

The unusual salvo offers a reminder that, even as health-care legislation lies in limbo in Washington, the battle over surging health care costs continues in other venues.

Anthem Blue Cross of California sent out notices earlier this month to many of its roughly 800,000 holders of individual policies, informing them that the costs of their plans would sharply increase to cover rising health-care costs. The increases do not affect employer-provided plans in the state.

The letters set off a furor among many Anthem policyholders, prompting California insurance commissioner Steve Poizner, who is running for the Republican gubernatorial nomination, to say that his department was investigating the increases.

On Monday, HHS Secretary Kathleen Sebelius joined the fray, writing Anthem President Leslie Margolin to impress on Anthem its "responsibility to provide a detailed justification for these rate increases to the public." In particular, she said, Anthem should disclose to policyholders what share of their premiums is going toward profits, administrative overhead and advertising, as opposed to covering medical claims. In its initial defense of the increases, Anthem has said only that its so-called "loss ratio" (the proportion of premiums spent on care) is above the state's required minimum of 70 percent.

Sebelius also noted that Anthem's corporate parent, WellPoint, has seen its profits "soar," rising to $2.9 billion in the fourth quarter of 2009.

"These extraordinary [rate] increases are up to 15 times faster than inflation and threaten to make health care unaffordable for hundreds of thousands of Californians, many of whom are already struggling to make ends meet in a difficult economy," she wrote.

Costs have increased in the individual market, Anthem responded Monday afternoon, because the recession has led many policyholders to drop their coverage, spreading expenses among a smaller pool of customers. Additionally, those remaining with the company tend to have, on average, greater health needs than those who have dropped coverage.

"We regret the impact this has on our members," the company said in a statement. "It highlights why we need sustainable health care reform to manage the steadily rising costs of hospitals, drugs and doctors. As such, it is important to go back to the beginning and get health care reform done right."

The health-care bills that have passed the House and Senate would completely overhaul the individual insurance market, which today carries high costs for many customers, with widely varying regulations from state to state.

By requiring that everyone carry insurance, the bills would bring millions more into the pool of insured individuals, spreading out costs. People without employer-based coverage would buy plans on an "exchange," a new marketplace where insurers could offer plans only if they complied with rules banning coverage for preexisting conditions and if their plans offered a set standard of minimum coverage. The bills would also set minimum "loss ratios," with the Senate bill requiring that insurers spend 80 cents of every dollar in individual premiums on medical claims.

The Anthem Blue Cross companies rely more than many other insurers on the individual market and have been among the most aggressive in resisting the national legislation.

Sebelius's letter is reminiscent of another brushback pitch from her department: a September letter from the Centers for Medicare & Medicaid Services to the insurer Humana, at the prompting of Senate Finance Committee Chairman Max Baucus (D-Mont.), demanding that the insurer stop sending letters to its customers warning them of proposed reductions in Medicare Advantage plans.


© 2010 The Washington Post Company

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