Private health-insurance companies, to be raising premiums by 39%? Kathleen Sebelius, Secretary of Health and Human Services, gave the breaking news that WellPoint, which owns the Anthem Blue Cross of California, was rich. It made $2.7 billion in the last quarter of 2009, which could not, she asserted, “justify massive increases,” and she announced a hearing.
Senate Majority Leader Harry Reid declared it was “greedy insurance companies that care more about profits than people.” Representative Henry Waxman announced his own additional Federal investigation.
President Obama expanded. It’s a “portrait of the future if we don’t do something now.” (Or is it a portrait of the future if they pass ObamaCare?) The President’s proposal, revealed a few days later, would add a new bureaucracy to his administration, the Health Insurance Rate Agency (HIRE), to wrestle with corporate greed and stifle premiums. This was a welcome opportunity to control the insurance industry.
“The WellPoint Mugging” was The Wall Street Journal’s editorial of February 18, with explanations, but perhaps Obama-and-Friends had not read it.
The federal Cobra regulations require insurance companies to extend the policies for 18-36 months of those who have lost their jobs, and California regulations extend that extension. This is how WellPoint lost $58 million in 2009, which is why it had to raise premiums or be assailed by shareholders, or leave the region. In short, the high premium-hike was not WellPoint’s fault.
California like all states has its own state insurance commissioner whom California insurance firms must inform of their proposals to raise premiums. WellPoint had reported its proposed increase to the California State Insurance Commissioner three months earlier, but he had not responded. WellPoint had put off actually raising the premiums till May.
What will be the effect of ObamaCare and its mandates on premiums? That is the basic question. They will all be increased, the amount depending on the market and the region.
In the 14 states where WellPoint has subsidiaries and whose actuarial data it has scrutinized, premiums are likely to triple on account of ObamaCare. The premiums paid by the young will rise the most. In Columbus, Ohio, starting from $52 a month, the premium will rise to $79 (the same for all who apply), bringing the cost to $134. Add $17 for higher benefit levels required by ObamaCare. Add another $6 for policy-holders’ share of the tax on insurance companies. Look for a total of $157, a 199% increase for individuals.
For families of four, the increase is 122%.
The average small employer in New York City will find his premium increasing by 6%, but under the same employer it will increase by 94% in Indianapolis, 91% in St. Louis, and 53% in Milwaukee.
A WellPoint hearing before Representative Bart Stupak’s Oversight subcommittee was held on February 25 and attended by WellPoint’s Chief Executive, an attractive young woman named Angela Braly, with the company’s head auditor. Three WellPoint policy-holders testified. They had complained to the company about their premium increases and were offered other less expensive policies, which, however, did not fit their needs.
CEO Braly explained that some rates were raised as high as 39% but the overall average was 25%. As for the profit of $2.7 billion for the fourth quarter of 2009, which had angered Secretary Sebelius, Braly attempted to explain that $2.2 billion of that was a one-time transaction for the sale of a subsidiary.
Four of the five committee members present in the sparsely attended hearing room were visibly hostile. Mr. Waxman called attention to WellPoint’s administrative costs as if somehow they were invented or at least exaggerated. He glared at a targeted profits figure of 7%, which the CEO said was actually 5%.
Profits for insurance companies are not popular. Senator Jay Rockefeller the following day at the White House Summit framed his views in an emotional excoriation of the insurance industry for putting profits ahead of people. In his opinion, the industry’s purpose was as a social-welfare agency, though he did not explicitly say so. Fifty years ago, all Economics 101 textbooks taught that the purpose of a corporation is “to maximize profits.” Say that today and you will be shunned as a spokesman for the oppressive capitalist system.
Angela Braly was asked how much she makes as CEO, which she answered precisely. It was a little over a million dollars a year. The Company had spent $3.7 million on a corporate retreat, to maintain relations with its customers, she said. She emphasized the company’s concern that premiums were so costly, pointing out that other branches of health-care were even-more-costly. She explained whenever she was allowed to, but time seemed short as were the tempers of four of her five interrogators.
She did not have an opportunity to give a comparison of WellPoint’s income with competitors’—not that that would have helped her case—but The Wall Street Journal did. WellPoint’s per-month per-member income compared with those of its two largest nonprofit competitors in California was $12.62, Blue Shield’s $13.22, and Kaiser’s $18.45. Miss Braly may or may not have a chance to make that point before the two hearings under Secretary Sebelius and Representative Waxman. The Sebelius hearing is scheduled for March 3.
WellPoint will show what may happen to the premiums of insurance companies if the ObamaCare bill should pass.
By Natalie Sirkin