Posted on 24 Feb 2010
Under fire from Congress for huge rate increases in California, a top health insurance executive said Wednesday that the higher premiums were justified by soaring medical costs, and she warned that pending legislation could make the problem worse, further driving up costs for young, healthy people.
The executive, Angela F. Braly, president of WellPoint, made the comments in testimony prepared for a hearing of the House Energy and Commerce Committee.
The hearing comes amid growing criticism of WellPoint and the health insurance industry by President Obama and Democrats in Congress, who say the proposed rate increases show the need for federal review and regulation of insurance premiums.
Anthem Blue Cross, a unit of WellPoint, recently informed subscribers in California that premiums for individual insurance policies would be rising an average of 25 percent, with some rates going up as much as 39 percent.
“Raising our premiums was not something we wanted to do,” Ms. Braly said. “But we believe this was the most prudent choice, given the rising cost of care and the problems caused by many younger and healthier policyholders dropping or reducing their coverage during tough economic times. By law, premiums must be reasonable in relationship to benefits provided, which means they need to reflect the known and anticipated costs they will cover.”
The increases in premiums are driven by prices charged by doctors, hospitals, drug companies and other suppliers, and by increases in the use of health care by an aging population, Ms. Braly said.
“For 2010,” Ms. Braly said, “we expect hospital inpatient and outpatient costs in California to grow by over 10 percent, driven primarily by hospital reimbursement rates. Additionally, we expect pharmacy costs in California to grow by over 13 percent.”
Ms. Braly said health care providers were charging more to the private sector, “including our members,” because payments from Medicare and Medicaid did not fully cover providers’ costs.
Families with commercial insurance pay almost $1,800 a year more for coverage as a result of this cost shift, Ms. Braly said.
Ms. Braly criticized health care bills passed by the House and the Senate, with strong support from Mr. Obama. The bills would require insurers to accept all applicants and would require most Americans to have health insurance or pay a penalty.
But Ms. Braly said the “personal coverage requirement” would not be fully effective, because millions of people would be exempted and others would make a “logical choice” to pay the penalty rather than buy insurance, unless they needed health care.
“The result,” she said, “will be a national health insurance market that is similar to New York, where the average individual market premium is over twice the average individual premium in California.”
Ms. Braly said the legislation pending in Congress “would increase California individual market premiums for the young and healthy by as much as 106 percent, before premium subsidies for certain eligible individuals” are taken into account.
Democrats have said insurers are raking in large profits while raising premiums. But Ms. Braly said profits accounted for “a very small percentage of a member’s premium.”
Another witness invited to the hearing, Lauren Meister of West Hollywood, Calif., said she was told in January that her Anthem Blue Cross premium was being increased 38 percent, to $516 a month, from $373.
Ms. Meister said she was offered the option of switching to a lower-cost Anthem plan that covered only generic versions of prescription drugs. But she said that was not feasible because she took several brand-name drugs for asthma.
In her prepared testimony, Ms. Meister called for more regulation.
“We saw what deregulation did to the cost of utilities in California,” Ms. Meister said. “We saw what the lack of regulation has done on a national level to our financial and banking system. Well, it’s doing the same thing to our health care system.”
“The City of West Hollywood, where I live, regulates how much landlords can raise the rent each year to keep rents stabilized,” Ms. Meister added. “Why can’t the federal government regulate how much health insurance companies can raise their rates per year, in order to stabilize premiums?”