Tuesday, March 23, 2010

Anthem Blue Cross: Not So Greedy After All

Cross-posted from Critical Condition on National Review Online.

Last month, it came out that Anthem Blue Cross, California’s largest for-profit health-insurance company, was planning to raise health-plan premiums this year by as much as 39 percent. The White House seized on the news to pillory health insurers and claim that the need for Obamacare was greater than ever.

Health and Human Services Secretary Kathleen Sebelius said she was “very disturbed” by the increases, and accused the company of cruelty and greed: “These extraordinary increases are up to 15 times faster than inflation and threaten to make health care unaffordable for hundreds of thousands of Californians, many of whom are already struggling to make ends meet in a difficult economy. [Anthem’s] strong financial position makes these rate increases even more difficult to understand.” Congress called hearings. Even California Insurance Commissioner Steve Poizner, a Republican running for governor, decided to launch an investigation.

Today, Anthem’s parent, Wellpoint Inc., held a conference call with investors to discuss its 2010 financial outlook. On the call, they said that because of lower revenues and higher expenditures on patient care, and despite lower administrative costs, they would earn 11 percent less in 2010 than in 2009.

To be specific: Wellpoint projected a 3 percent decline in operating revenue; a 0.7 percent increase in the percentage of premiums to be spent on patient care (from 82.6 percent to 83.3 percent); administrative costs of 14.4 percent (down from 15.9 percent in 2009); and profit margins of 4.4 percent (down from 4.8 percent). And their margins are only that good if the proposed rate increases, that have been so ardently criticized, go through.

What Wellpoint’s disclosures demonstrate is that the rate increases they are seeking are not a result of ruthlessness, but of rising health-care costs. They must pass the majority of these costs on to policyholders, or the company will lose money. Unfortunately, the biggest cause of rising health-care costs is poorly conceived government policy, a problem that Obamacare will accelerate.

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