Anthem Wellpoint’s announcement that it was raising premiums up to 39% for members covered by their California individual insurance product hit at a really bad time – for Anthem.
HHS Secretary Kathleen Sibelius reaction was immediate and blunt, as she ordered a federal probe into the rate hike.
“It remains difficult to understand how a company that made $2.7 billion in the last quarter of 2009 alone can justify massive increases that will leave consumers with nothing but bad options: pay more for coverage, cut back on benefits or join the ranks of the uninsured.”
She’s right, as far as it goes. And things heated up even more last week, with the release of a report on insurance rate increases around the country.
To justify the increase, Wellpoint claimed
_ healthy customers are dropping coverage to save money while sicker ones retain it and run up medical bills
_ healthy customers also are switching to cheaper insurance options, further dinging revenue
_ some customers are moving into a higher age category that carries higher premiums
_ deductibles and co-payments haven’t gone up with inflation
_ prices for medical care are rising
_ people are using more health care, again, age is a factor
Here are the facts
1. The individual business accounts for 10% of Wellpoint’s California membership, or about 600,000 members. (other reports indicate this figure is higher, but this comes from their state filing)
2. The average rate increase will be about 25%.
3. Data from their filing with the state appears to refute Wellpoint’s claim that membership is declining, as it actually increased over the year.
4. The claim that healthier members are dropping coverage while sicker, more expensive members remain in the plan is likely valid. This is what happens when rates go up and healthier people, who have the option of joining a cheaper plan, leave while the members with pre-existing conditions who can’t find adequate, affordable coverage have to stay with their current plan.
5. Despite claims fro Sibelius et al, Wellpoint is not that profitable; while it did make $2.7 billion in Q4 2009, most of that was from the sale of their PBM division. In total Anthem (the parent company) made $4.7 billion last year on $65 billion in revenue; a 3.1% profit margin (on ongoing operations, discounting the one-time profit from the PBM sale).
And here’s the editorial view.
Health insurers are not that profitable; as an industry, net profits were 2.2% in 2008. I’ll stipulate that this is in large part due to a lack of creativity and foresight on the part of insurers, coupled with a demonstrated failure to do what they’re supposed to do – deliver good coverage at affordable prices. Most insurers are not much more than transaction processors and provider aggregators.
Another example of the insurance industry’s willingness ongoing penchant for shooting itself in the head. Health reform is clearly a highly politicized topic, yet just a couple days before the rate increase was announced, Wellpoint settled a dispute in California by agreeing to take back 2330 members they had terminated after those members had the temerity to actually submit bills for medical care.
Who could possibly have predicted the hue and cry? That a big rate increase after settling a rescission dispute would raise the ire of politicians while the nation’s debate on health care reform is still at full volume?
What does this mean for you?
Perhaps this will do the industry some good, as the focus on profits will reveal insurance companies aren’t making big bucks, and politicians will start searching for other, more meaningful areas to address.
Doubtful.
Feb
22
It would be interesting to see data on the loss ratios and profit margins in Wellpoint’s individual business alone – in total and just in California. Small group (2-50) data would also be interesting to see. They would have had to lose a lot of money on individual policies in 2008-09 to justify such huge rate increases when conservative estimates of medical trend rates seem to be running at 7-9%.
It also doesn’t really matter whether the increases are justifiable or not. The system is clearly broken when it subjects such large numbers of people to such huge rate increases. With the possible exception of phony energy crises and isolated housing bubbles, I can’t think of any other areas of the economy where such huge increases would be tolerated and the affected people would have such bad options.
Joe: Your point about the health insurance industry’s low profit margins makes sense to me but most of the American public would disagree with your assertion that Anthem’s profit of $4.7 billion in 2009 isn’t “big bucks”.
I have to wonder if the lack of accountability for (group health) treatment has an impact (or rather how much of an impact). As an example I saw a dermatologist recently and she told me I could start having “medical” facials as they would be covered by my PPO. Well that’s all well and good but is it medically necessary? No. Would I like a “free” facial every month? Of course.
There seems to be a tendancy to offer and accept treatment with the “someone else will pick up the tab” mentality which clearly adds cost to the system.
(note: I will not be taking up the offer)
What smelled about the increase was the timing of it. One would normally try and have a strategy for an increase on a block of business. Yes B25 is going up 42% , but we are offering B75 at the same price etc. Also I am told California has a minumum loss ration requirement of at least 70%. Perhaps that’s what needs to be looked at?
I am, unfortunately, somewhat on WellPoint’s side here as far as the justification for the rate increases.
One thing not mentioned is that, depending on California COBRA rules, a lot of the individual-plan increase could be a result of more people taking COBRA in a state where unemployment has been high. I think in many states, employees who elect COBRA don’t actually just get continuation of their previous group plan — they get an actuarially equivalent individual plan.
For the reasons that Joe outlines here — healthy people do without the coverage, while those with on-going conditions that generate claims have no choice but to take COBRA — the typical medical loss ratio for a COBRA population is in the 175-percent to 250-percent range. Yikes! That 70-percent minimum is in no danger.
The whole thing smells full of fish. I would love to look at their “lose ratio.” This, you won’t see. They are making soooo much money, the lose ratio doesn’t exist.
SPARTEN, I don’t think you understand the term “medical loss ratio.” It’s an industry term that merely means medical claims paid as a ratio of premiums received. As a publicly traded company, WellPoint publishes its medical loss ratio every quarter, and its on their website at the Investor Relations link. You know the old saying about how junkies can’t lie to their pushers? Well, publicly traded companies can’t lie to their investors either, so the numbers there are real. If they weren’t, the company’s trading value would take a dump, and it would be worth nothing.
Also, in the states where it does business, its health plans have to file financial reports quarterly as well, and the reports are detailed and standardized by the National Association of Insurance Commissioners. Each state’s filing contains either the loss ratio, or the information needed to calculate it.
Simply put, real numbers are out there if you know where to look.
Good article…. 2 questions I have.
1…..How much of a profit margin is acceptable/unacceptable for a company dealing in peoples health?
2…Point 4 under your “Facts” heading is an assumption. This number could be in huge in eaither direction…
THANKS