Anthem attributes premium hikes to medical costs in tough economy

WASHINGTON-When outraged lawmakers sent letters to Anthem Blue Cross last month demanding explanation for its premium increases for individual policies in California, the company replied by saying that rising healthcare costs in a challenging economy necessitate higher premiums. One healthcare economist, however, speculates that other factors might be contributing to the increase as well.

"It looks like a political chess move," says J.D. Kleinke, economist, author and MANAGED HEALTHCARE EXECUTIVE editorial advisor. "The timing and the magnitude of the increases seem almost deliberate, meant to drive these people away."

Kleinke says he can only guess how Anthem will justify the premium hikes, some reportedly as high as 39%. In theory, he says, pricing the products out of the market could reduce the plan's share of individual policies, which are not particularly profitable. The rate increases possibly could be an attempt to exit the market.

Brian Sassi, president and CEO of parent company WellPoint's consumer business unit, issued a letter to HHS Secretary Kathleen Sebelius to respond to her request for more information on the rate hikes.

In the letter he says, "An independent actuarial firm concluded that our rates are actuarially sound and necessary, reflecting the expected medical costs associated with the membership in these plans, and that they satisfy or exceed the medical loss ratio required by California law."

Rate changes range from a 20.4% decrease to a 34.9% increase, according to Sassi. The letter goes on to list four reasons why individual market rates are increasing faster than medical inflation: a less healthy risk pool; individuals moving to lower-cost options; individuals aging into a higher age category; and deductible leveraging.

Sebelius wasn't sold. She released a statement citing Anthem's $2.7 billion earnings in the last quarter of 2009 but didn't note that most of the money came from the one-time sale of a subsidiary.

In a followup, Sebelius listed a selection of "excessive" premium increases requested last year by several insurers that dominate their respective markets, including Blue Cross Blue Shield of Michigan's 56% request and Anthem of Connecticut's 24% request.

Through her involvement, Sebelius is lending federal backing to the state legislators and insurance commissioners, while urging Congress to keep the momentum going on healthcare reform.

"Premiums will go down 14% just by passing reform," she says.

THINGS ARE TOUGH ALL OVER

Anthem told brokers and members in California that it might adjust premium prices more frequently than its typical annual adjustment. Anthem lost money on individual policies under COBRA in 2009. The state does not direct such members to a high-risk pool, and it caps the amount plans can charge them.

Other plans in the market, including Blue Shield of California and Aetna, have significantly raised premiums for 2010 as well. Anthem's profit margins are in line with its competitors, according to Sassi's letter.

Another "reading of the tea leaves" might suggest that Anthem is planning ahead for anticipated reforms that would bring in a flux of individual members who have government subsidies to purchase insurance, Kleinke says. Losing members now might allow the company to regain them at a higher premium after some type of subsidy was enacted.

Adding more people to the pool of uninsured Americans could change the tenor of the healthcare reform debate, providing a possible demonstration of why an enforceable coverage mandate is needed, according to Kleinke. At the very least, Anthem will have to prove its medical loss ratio meets the state minimum of 70% for individual policies or face a possible withdrawal of its license.

Rep. Henry Waxman (D-Calif.) had scheduled a meeting with Anthem late last month, while California Insurance Commissioner Steve Poizner-a Republican running for governor-asked Anthem to delay the March 1 rate increases until May 1, which the plan agreed to do. Other state officials are now pushing all the more for legislation to regulate health insurance premiums.

According to Poizner, medical cost inflation in California is only 10% to 15%. He reportedly is skeptical of Anthem's rates now although he had seen an actuarial analysis last November and didn't balk.

WellPoint cancelled its investors' day event scheduled for late February, saying it was preparing for the investigation. It will conduct a conference call with investors on March 17.