Lawmakers Question Wellpoint's Anthem About Its Proposed 39% Increase

Ventura County Star (CA)
February 24, 2010


Feb. 24--SACRAMENTO -- Top executives from Anthem Blue Cross on Tuesday defended the company's proposed rate increases of up to 39 percent as necessary to overcome $68 million in losses in the individual health insurance market last year and vowed to implement them if they are approved by Insurance Commissioner Steve Poizner.

"Our rates are competitive. This is not unique," said James Oatman, the vice president who heads the company's individual insurance division, testifying before a special hearing of the Assembly Health Committee. The hearing intended to examine the proposal by California's largest for-profit health insurer.

Consumer advocates and skeptical lawmakers, however, pointed to financial documents showing that Blue Cross transferred more than $1.5 billion to its parent company over the past two years and maintains cash reserves far in excess of what state regulators require to cover the costs of claims.

Chairman Dave Jones, D-Sacramento, said lawmakers should extend California's ability to regulate auto and home insurance premiums to also include health insurance.

"We in California have the means, the ability and authority to protect Californians against these outrageous rate increases," he said.

Under existing state law, the insurance commissioner has the authority only to determine whether the rate increases will keep a health insurer's revenues within the requirement that it spend at least 70 percent on medical care for its customers.

"We are confident our rates are filed in complete accordance with California laws and regulations," Oatman testified.

The substantial rate increases in California -- expected to take effect May 1 -- have drawn national attention and have been seized upon by advocates for national healthcare reform as fresh evidence of the need for reform.

Anthem Blue Cross President Leslie Margolin agreed comprehensive changes are needed across the healthcare industry. "We must address the causes of our collective failure," she testified. "None of us can keep doing what we're doing."

For the insurance market, she cited the need for guaranteed coverage for all consumers, regardless of their health history, and for an effective individual mandate that would require everyone to have insurance.

"If we can get that, we will support it," she said.

Those provisions are part of the reform proposals being considered by Congress and also were included in Gov. Arnold Schwarzenegger's failed attempt to implement comprehensive healthcare reform in California three years ago.

Jones noted Blue Cross was among the most vocal opponents of the California reform effort.

"This is from a company that fought tooth-and-nail Gov. Schwarzenegger's 2007 reform," he said. "The record leaves me with considerable doubt about what the motives are."

Echoed Assemblywoman Mary Salas, D-Chula Vista: "I was here when we tried to get AB 8 through, and I saw the lobbyists come through and try to destroy it, and they did a heck of a job."

Oatman said the company had about 800,000 customers in California's individual insurance market last year. But even after implementing a 13.8 percent overall rate increase at the beginning of last year, its premium revenue grew by only 2 percent while its costs for paying claims rose by 8 percent.

He said many customers canceled policies last year because of economic hardship. That has led to a self-selection process that has left the company with a pool of customers who tend to require a higher-than-average level of medical care. "The people who are leaving are generally healthier than the people who are staying," he said.

Margolin said Anthem Blue Cross' profit margin is within the typical industry range of between 2.5 percent and 5 percent.

"We have no interest in profits beyond the level I have described," she said.

Jones, noting that the profits of the five largest health insurance companies in the United States increased 56 percent last year to $12.2 billion and their CEOs received up to $24 million in compensation, described the proposed rate increases as excessive. The result, he said, will be to force more people to go without insurance and lose access to healthcare.

"Have you no shame?" he asked Margolin.

She responded that such a question was "disappointing" to her and all of her Blue Cross colleagues. "We work so hard to do the right thing every day."

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