Health Inc.

WellPoint Goes On Offense To Defend Insurance Rates

Giant health insurer WellPoint is putting up its dukes up in defense of higher premiums at its California subsidiary, Anthem Blue Cross.

For those new to the fight, last week Health and Human Services Secretary Kathleen Sebelius asked Anthem to justify rate hikes of as much as 39 percent for people buying individual insurance policies.

WellPoint assembled several of its top executives in Washington Thursday to explain the hike to reporters. Here's the recap:

No.1: Sharply higher medical costs this year that the company has had to shoulder alone, because members have fixed deductibles and co-payments.

No. 2: A bad economy has led healthier people to drop insurance. In the words of Brad Fluegel, the chief strategist for Wellpoint, "The risk pool is deteriorating." Even in a bad economy, sicker people will continue to buy insurance. So there's a higher percentage of sick people in the insurance pool. And those sicker people cost more to care for.

Fluegel said that the company had lost millions of dollars in the individual health insurance market in California this year, although he wouldn't say exactly many millions. He acknowledged that health insurers had a profit margin last year of about 3.7 percent, and Anthem's total business in California was probably in the same ballpark. But still, he said, compared to drug companies and medical device makers, "We're well down on the scale of overall profitability."

The WellPoint executives said they don't want to raise their rates, but they have to. "We are in the business of selling insurance," said Brian Saasi, president of WellPoint's consumer unit. "Our rates are reflective of our underlying costs." The mistake the company made, he said, was in not anticipating higher costs this year.

One thing is for sure, Anthem's timing for the increase couldn't have been much worse, coming right as Democrats were looking for to get health care overhaul rolling again. Indeed, across town Sebelius was making the case that insurance increases are out of hand.

Fleugel said he's hopes the debate over Anthem's price increase will convince politicians that something needs to be done to hold down medical costs. Of course, it could go the other way, with politicians putting the blame on insurers.

WellPoint will have another crack at making its case next week. The House Subcommittee on Oversight and Investigations has asked WellPoint CEO Angela Braly to appear at a hearing about the Anthem Blue Cross increase on Feb. 25.

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