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WellPoint draws criticism for California rate increase

January 9, 2013

WellPoint Inc.’s plan to raise the rates that small employers in California pay for medical insurance was criticized as unreasonable by the state insurance commissioner, who said customers are being charged this year to cover U.S. health-law fees that won’t begin until 2014.

WellPoint’s Anthem Blue Cross unit in California is raising those rates an average of 10.6 percent, Insurance Commissioner Dave Jones said Tuesday at a news conference. Indianapolis-based WellPoint sells small group policies that cover 284,000 California employees, including 54,000 whose policies will renew this month and would immediately be affected, he said.

WellPoint overstated future medical use and cost trends and shouldn’t have included next year’s fees as justification for the increase, Jones said. The commissioner provided his findings last month to the insurer, which plans to proceed with the rate increase. WellPoint’s proposed 39-percent rate increase in 2010 was criticized by politicians and advocates, who said it spurred support for President Barack Obama’s Affordable Care Act.

“Anthem Blue Cross’s return on equity or profit has been and continues to be excessive,” Jones said.

Anthem Blue Cross said rates will go up an average of 6.5 percent and the increase is lower than not-for-profit competitors.

“The rate increases in the small group market are not unique to Anthem Blue Cross, but rather represent an economic reality faced throughout the entire industry as health-care costs continue to escalate faster than our state’s economy as a whole,” Kristin Binns, a WellPoint spokeswoman, said in an e-mail.

WellPoint, the second-biggest U.S. health insurer by market value, reported gross profit of $13 billion in 2011, or about 21 percent of revenue, according to data compiled by Bloomberg. The company owns Blue Cross plans in 14 states. UnitedHealth Group Inc., based in Minnetonka, Minn., is WellPoint’s larger competitor.

WellPoint shares were up $1.06 Wednesday morning, to $61.12 per share, an increase of 1.8 percent.

The 2010 health law will impose a sales tax on insurers that starts at $8 billion in 2014.

California’s insurance commissioner can only review rate increases and doesn’t have the authority to stop those deemed excessive. Jones said 37 states have the power to halt unreasonable rate increases.

Aetna Inc. CEO Mark Bertolini said last month that health insurance premiums may as much as double for some small businesses and individual buyers next year. The Affordable Care Act is expected to extend health coverage to about 30 million people who otherwise couldn’t get insurance, partly paid for by new taxes and fees on health-care companies.

Around the country, Aetna, UnitedHealth, Centene Corp. and other health insurers have proposed large increases on small businesses and individual buyers in recent months, citing rising costs for medical care and greater requirements of the health-care law. The Obama administration has said provisions in the law have kept increases from being even higher.

In other WellPoint news, the company confirmed that it still expects to name a new chief executive officer this quarter, said interim chief John Cannon.

Cannon said a CEO would be named “hopefully sooner rather than later.” He spoke at a health-care conference in San Francisco sponsored by JPMorgan Chase & Co.

Cannon has served as the interim head of the Indianapolis-based company since the departure of Angela Braly in August. He said in October that the search for her replacement might stretch into this quarter.
 

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