The nation’s insurers have come under sharp attack by the Obama administration for seeking seemingly staggering rate increases on policies they sell to individuals.
The health and human services secretary, Kathleen Sebelius, recently pounced on WellPoint’s Anthem Blue Cross unit for wanting to raise premiums as much as 39 percent in California, and on Thursday she issued a scathing report detailing double-digit increases sought by other insurers last year and so far this year.
Angela F. Braly, WellPoint’s chief executive, was forced to cancel an investor presentation to prepare for the grilling she is likely to receive before Congress next week about the insurer’s rate increases.
But as bad as it may play politically, for insurers like WellPoint, the challenging business environment may leave them little choice but to raise prices if they want to protect profits, analysts and some health economists say.
The weak economy and the unrelenting rise in the cost of medical care make it increasingly difficult for companies to avoid substantial rate increases — even if those increases provide fresh fodder for Democrats seeking to pass the now-stalled health care legislation in Congress.
“If they are losing money, they need to raise prices,” said Charles Boorady, an industry analyst with Citigroup.
Even so, he faults WellPoint for seeking the increases in the current political climate. He likens it to someone waving a five iron on a golf course during a lightning storm. “You’re asking to be electrocuted.”
Under that political pressure, the company has said it will delay the California rate increases until at least May 1.
But from a business perspective, WellPoint, one of the nation’s largest insurers and the operator of commercial Blue Cross plans in more than a dozen states, may have few alternatives as a company accountable to shareholders demanding higher earnings. The money WellPoint makes from selling policies to individuals and small businesses is an important source of its overall earnings. But the company says it lost millions of dollars last year in California on individual policies.
“They’re not prepared to lose money on this line of business,” said Cathy Schoen, senior vice president for research at the Commonwealth Fund, a nonprofit research group in New York. In fact, she said, many carriers choose not to sell policies in the individual market.
Many health policy analysts point to the sharp price increase sought by Anthem as evidence that the way individual insurance is sold in this country needs to be changed.
“What they did is actuarially sound and totally legitimate,” said Andrew Kurz, a former insurance executive with Wisconsin Blue Cross and Blue Shield who is a vocal critic of the current health care system. “It’s the marketplace that is wrong, not Anthem.”
Insurers say they disagree with the Obama administration on whether the current legislation adequately addresses what is wrong with the health care system. In the individual market especially, the companies say, healthier people tend to opt out, leaving sicker people with higher medical costs for the insurers to cover. That is a big reason the insurance industry continues to push for mandatory coverage for everyone.
“Increases in the cost of coverage in the individual market shine a spotlight on the urgent need to reduce the growth of underlying medical costs and to bring everyone into the system,” said Karen Ignagni, the chief executive of America’s Health Insurance Plans, a trade group, in a statement. “If reform doesn’t address these pieces, it will not solve the serious problems that individuals, families and employers face.”
While WellPoint officials have been outspoken opponents of the current health care legislation in Washington, they say California illustrates the need to change the system. Although California is an important market for WellPoint, the state’s largest insurer, California’s economic woes have proved increasingly challenging. As companies have laid off workers, the number of people Anthem covers under employer plans has declined sharply. Those seeking individual coverage have tended to be people who know they are likely to have high medical costs.
Although the company would not disclose exactly how much it had in operating losses in its individual-policy market in California, it said its medical claims last year were 6 percent higher than it had forecast, so the company did not charge enough in premiums last year.