Health Insurers To the Rescue (why Wellpoint raised rates)

The U.S. Congress, like DrRich, has been distracted from the vital issue of healthcare reform in recent weeks, due to the prospect of elections of one form or another. Which is to say, both of us have been pretty much ignoring the healthcare reform issue in favor of matters that we each found to be far more critical to our own personal interests (Congresspersons: the growing likelihood of being kicked out of office; DrRich: the possibility of winning an iPod).

Anyone can understand how DrRich might be distracted by such a prospect. It may be a little harder to understand why the Democrats - who still hold the Presidency, a large majority in the House, and a 59 to 41 majority in the Senate - suddenly seem to be so very disheartened, to the point of virtual paralysis, on healthcare reform. Healthcare reform, after all, is the crowning jewel in their agenda to fundamentally change America as we know it.

While President Obama, Speaker Pelosi, and a few other stalwarts seem to understand that passing healthcare reform would be worth almost any price that might be extracted by the electorate in November, less principled (and more at-risk) members of Congress, who are apparently less dedicated to a certain ideology than their leaders, apparently see it another way.

And so, from all appearances, things appear to have stalled on healthcare reform.

But while our political leaders seem willing at this moment to take a breather - either to lick their wounds and regroup, or to celebrate an important tactical victory - one interested party in the healthcare reform wars cannot afford to rest.

As DrRich has pointed out before, the health insurance industry is the one entity that simply cannot afford to wait. They need healthcare reform now.

The health insurance industry has pretty much run out its string. The era in which insurers can increase their market cap by acquiring public assets (i.e., non-profit institutions) for a fraction of their true value, and by making mergers and acquisitions, is pretty much over. For the past few years insurance companies, for the first time, have had to try to make a profit by taking care of sick people. They have never done that successfully, and never will. They have tried every underhanded trick imaginable to avoid paying benefits to their subscribers. They have already raised insurance premiums to the very breaking point. But an uncooperative public insists on getting older and sicker, and greedy drug and medical device companies insist on bringing ever-more expensive technologies to the clinic. The insurance industry finds its profit margins (already small) rapidly eroding. The industry’s business model - taking in inflated insurance premiums, then attempting to withhold medical services - is irreparably broken.

As a result, what the health insurance industry needs more than anything else is a graceful exit strategy. And Mr. Obama’s healthcare reforms promised them that very thing. (What, exactly, they have been promised is largely a matter of conjecture, but most likely they will take on a role in administering government-funded healthcare, quite possibly assuming the role of a public utility.)

Whatever may be the particulars of the “deal” the health insurance industry struck with the reformers, that deal offered them enough to purchase their silence during the entire roiling debate over healthcare reform through the summer, fall and winter. They have stoically (almost cheerfully) accepted their assigned role as “villain” in this set piece, and have silently borne the public “attacks” the President and his soldiers have dutifully launched against them in an effort to drum up support for their reforms. All the nasty things the Democrats have said about them, the industry understands, are necessary components of their last best hope to salvage something serviceable out of their broken business model. No Harry and Louise this time!

Despite this symbiotic relationship, the reforms envisioned by the Democrats and the insurance industry have now faltered. The stalling of the reforms, however, means very different things to these partners.

For the Democrats, while abandoning, or even substantially diminishing, the ambitious reforms they had in their sights might prove modestly embarrassing for a time, such is the nature of politics. When one overreaches, one pulls back and waits for a while, until the other side overreaches. Look at where the Republicans were just a year ago. A year or three from now, they may be back in a similarly diminished state - and the time for passing healthcare reform may again become propitious. If you’re a Democrat politician, you must take the long view.

But the insurance industry does not have that luxury. They are at the end of their tether, and their only alternative to a graceful exit strategy of the type (whatever it was) the President promised them, is a completely graceless one. Whatever happens or doesn’t happen with healthcare reform, the insurers can’t keep doing business as usual. DrRich believes the health insurance industry has been backed into a corner, and the doorway the Democrats were making for them is being nailed shut.

In such a situation, it is entirely predictable that the insurance industry will take some kind of drastic action, to try to force healthcare reform back on the table.

And last week, Wellpoint did so. Wellpoint’s California subsidiary, Anthem Blue Cross, announced it is raising its already-astronomical health insurance premiums by as much as 39%, a move that promises to greatly increase the number of Californians who are uninsured.

Kathleen Sebelius immediately fired off a public letter to the company, demanding that they justify this unconscionable rate increase. And Wellpoint, lustily assuming its assigned role as villain, was delighted to comply. We’re in a recession, Wellpoint brazenly asserted, and in a recession, like it or not, people exercise their prerogative to drop their health insurance. The only people who don’t drop their health insurance are the sick people or those who are likely to become sick, which means that our cost per subscriber goes way up. So naturally, we have to increase premiums. By a lot. It’s just business. That’s just the nature of our current, unreformed healthcare system. So choke on it.

Wellpoint was also kind enough to mention (for anyone dense enough to have missed the point) that the need for higher premiums would be nicely mitigated if everybody was mandated to purchase health insurance.

Wellpoint’s premium increase immediately triggered great volumes of delighted outrage by thankful Democrats, who really need a large dose of “evil insurance company” right about now, but it elicited only a few lame and uncomfortable attempts by stunned Republicans to diminish the significance of the unfortunate action.

DrRich would like to point out that, from a pure business standpoint, there was no good reason for Wellpoint to stir the soup at this moment. Wellpoint is the most financially sound private health insurance company. While its California subsidiary did lose money last year, overall the company performed quite well, and reported a very nice profit growth for the year. And with several of its competitors in trouble, Wellpoint stands to do comparatively well for the foreseeable future. So it stands to reason that, if Wellpoint really wanted healthcare reform to go away, they would have waited a few months before announcing their rate hike. It would have cost them very little to do so. The last thing they would have done is to throw the reformers a critical lifeline just as they were going under for the last time.

Wellpoint’s astounding premium increase was, DrRich submits, a strategic move to push health insurance reform back to the front burner.

The Republicans, many of whom believe that the failure of Obama’s healthcare reform will spell the failure of his presidency, have been thereby served notice. An angry electorate - which, at the moment, seems ready to punish Democrats for their attempt at passing an unpopular government takeover of healthcare - is likely to become even angrier if it turns out that the failure to reform healthcare will give the haughty insurance companies the green light to price even more millions of hard-working Americans out of the health insurance market. That species of anger will be directed toward the Republicans, and not the Democrats.

DrRich has always maintained that if healthcare reform is to happen, despite the incompetence of the Democrats who control everything, the reason it will happen is because the insurance companies cannot survive without it.

Accordingly, Republicans who understand what Wellpoint is telling them will think twice about skipping President Obama’s proposed bipartisan summit on healthcare, or behaving intractably if they do show up. If they fail to get the message, DrRich suspects that we will soon be hearing about additional, even more astounding, rate hikes.

For the past few years insurance companies, for the first time, have had to try to make a profit by taking care of sick people.

Not true: Blue Cross and Blue Shield alone are more than 70 years old in California.

But the insurance industry does not have that luxury. They are at the end of their tether

Not true: The insurance industry has been manacled by unfunded madates, over-regulation, greedy lawyers, and snidely socialists intent on their destruction

Misleading: -and also is on record as being against those requirements.

Wellpoint’s premium increase immediately triggered great volumes of delighted outrage by thankful Democrats,

The only truth in this whole nasty hit piece.

I got a letter from “Wellpoint” raising my monthly premiums to $517 per month for a $2000 deductible policy with no riders. When I started buying health insurance, it was $35/mo with a $10 deductible. I don’t know whose “strategy” this is, but it’s a major expense for me. I don’t mind paying for services I actually receive, but I don’t like being used as a “strategy”. I say we should get the lawyers out of medicine and stop giving free healthcare to illegal aliens.

For another take on WellPoint’s actions:
The WellPoint Mugging
The brawl over rate increases is a preview of ObamaCare.
http://online.wsj.com/article/SB10001424052748704804204575069833643345608.html?mod=WSJ_Opinion_AboveLEFTTop

I don’t know about the lawyers, but definitely, these carriers have been put in a squeeze by government bureaucracy and idiotic legislation. If we get Obama Death Care, that aspect will be made worse. Last I heard, Death Care will require insurance companies to insure the uninsurable, at great risk to those companies. They have to make up the risk somehow, and that will come out of the pockets of the policyholders. My guess is that this rush to raise rates is a tactic to forestall those losses should Death Care pass.

$517 for a 2,000 deductible? I pay 558 and change for a 500 deductible. But I’m finding out that my coverage is becoming less and less. Nothing is covered at 100% anymore...most are 80%, some even less. Now the company is balkiing at coverage for a prescription I need. I keep thinking why am I paying premiums when the coverage stinks so badly and my out-of-pocket expenses are still high.

I view it as catastrophic coverage. One serious illness could wipe me out without insurance, but all the routine expenses are my responsibility. I just think I should pay less for such limited coverage.

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