Pointed Questions for WellPoint

On February 24th WellPoint CEO Angela Brady will appear before the House Energy & Commerce Committee. She will attempt to explain why the company’s California operating unit, Anthem Blue Cross of California, recently sought to raise rates on some individual policy holders upward of 39 percent. While the effective date of the rate increase was postponed, the hearing is not. And that it is being held the day before President Barack Obama’s bi-partisan health care reform summit with Congressional leaders is no coincidence. The Administration and others have pointed to the rate increase as one of the reasons comprehensive health care reform – or at least health insurance reform – is needed.

In preparation for the hearing, House & Energy Committee Chair Henry Waxman and Subcommittee on Oversight and Investigations Chair Bart Stupak sent a letter to Ms. Braly asking for background information. The information ranges from the general (“reasons for the premium rate increase”) to the specific (for 2005-2008, “a table listing, as applicable, premium revenue, claims payments, sales expenses, other general or administrative expenses, and profits for all individual health insurance products”) to what some might call a fishing expedition “all internal communications, including e-mail, to or from senior corporate management relating to the company’s decision to increase premium rates in California in the individual health insurance market.”)

The hearing will be closely watched, not only by lawmakers but by WellPoint’s competitors. It could provide an interesting glimpse into the rate making process employed by health insurance carriers. The information will certainly be cited by advocates – and opponents – of requiring carriers to spend a certain percentage of the premiums they take in on medical claims as opposed to administrative expenses and profits.

Ms. Braly’s testimony will also likely highlight the different ways politicians and business people view the same data. What to a member of Congress may look like profiteering could look to an executive like a prudent hedge against unknown risk.

The Associated Press has taken a balanced approach to explaining the issues behind the Anthem Blue Cross of California rate increase. The analysis is worthwhile reading for anyone following this particular controversy. Among its conclusions: rising medical costs are the main driver of rate hikes, not profits; health insurance rate regulations vary considerably from state-to-state; non-profit health plans also have large rate increases; carriers can’t, and probably shouldn’t, subsidize rates for one business line in one state with profits earned by other lines of business, especially in other states; and that there’s a lot of elements taken into consideration by carriers when they set their rates. While there’s little specifics many insurance professionals don’t already know (other than the make-up of WellPoint’s profits), it’s a very useful summary and analysis of the issues.

The timing of Anthem Blue Cross of California’s rate increase is generally perceived as constituting political malpractice. But there may be a silver lining. Ms. Braly has an opportunity to educate lawmakers on how and why carriers charge the health insurance premiums they do. If members of the Energy & Commerce Committee are willing to look beyond the politics of the rate increase, they might gain a better understanding of how health insurance works in this country.