Anthem Blue Cross of California raises premium up to 39%

Earlier this year Anthem Blue Cross of California (owned by Wellpoint Inc.) announced that it would be raising its insurance premiums by up to 39% this year.  Is this increase justified, or are they just trying to increase premiums before the Federal government regulates premiums if the Healthcare reform bill passes?

The facts don’t seem to warrant the large increase in premiums requested by Anthem Blue Cross. WellPoint CEO Angela Braly says its customers’ healthcare costs only went up 8.9% last year.   In fact, even 8.9% seems high, given what actuaries at the Department of Health and Human Services indicated in a recent report.  To be fair, the increase in premiums anticipates a large increase in healthcare costs in the coming year.

Another reason given by WellPoint Inc. for the large increase is the poor economy.  When times are tough, healthy people don’t buy healthcare insurance, so that means that the insured pool is smaller and sicker, requiring more healthcare.   This is probably a valid argument, but the Healthcare reform bill would remedy this problem by mandating that everyone buy healthcare insurance.

Consumers and legislators are complaining loudly about the proposed increases.  Two members of the House Energy and Commerce have asked for an investigation into this premium increase.  A hearing is set for February 24, 2010 in the House chamber.  WellPoint Inc. executives are asked to be present to relate the facts that warrant this increase.

WellPoint Inc., the nation’s largest health insurer by membership, had a net income of $2.7 billion, or $5.95 a share, in the fourth quarter of last year, compared with profit of $331.4 million, or 65 cents a share, for the same period the previous year. This is an eight-fold increase over last year’s income.  This would indicate that the insurance business has been good during the past year.

In all probability, Well Point is simply trying to increase premiums and thus revenue ahead of the mandates required by the Healthcare reform bill, should it pass. These include:

• The requirement to accept persons with pre-existing conditions
• Regulations on rates and premiums
• Mandated coverage required in each policy

 
The executives at WellPoint Inc. have determined that their profitability will be adversely affected by the Healthcare reform bill, so they are just trying to remain viable as a company. By obtaining a premium increase before the regulations and mandates of the Healthcare reform bill take effect, the executives of WellPoint Inc. are looking to stay viable.

Interestingly, President Obama’s proposal that he unveiled a couple of weeks ago had a provision that would retroactively address just these types of situations.  The constitutionality of any retroactive regulation would probably be challenged in court.