IBJNews

Rules mostly falling WellPoint's way

Back to TopCommentsE-mailPrintBookmark and Share

Health insurers such as WellPoint Inc. and UnitedHealth Group got a little bit of regulatory Meatloaf last week: Two Out of Three Ain’t Bad.

The insurers won fairly broad leeway under key rules suggested by state insurance commissioners that will govern what kinds of expenses count toward meeting a new federal threshold to spend at least 80 percent of premium dollars on medical care.

The proposal by the National Association of Insurance Commissioners said wellness efforts aimed at improving an individual customer’s health can be counted as medical expenses, but wellness and other efforts "should not be designed primarily to control or contain cost."

Also, insurers will be able to subtract from their total premium revenue most of what they pay in state and federal taxes. That would have the effect of increasing the companies' medical-loss ratios, which must exceed 80 percent for small companies and 85 percent for large ones.

"It's written the way insurers wanted it to be written, and so that is good for the insurers," Amy Thornton, an analyst at Concept Capital's Washington Research Group, told Reuters.

The proposal still must be approved by the U.S. Department of Health and Human Services. However the rules are finally written will have a big impact on insurers, because the new health law requires them to refund any premiums that should have been spent on medical care.

One thing that didn’t go the way Indianapolis-based WellPoint and others would like: Under the proposed rules, insurers would have to meet the 80-percent threshold for each of the numerous health plans they operate. Insurers wanted to be able to aggregate the ratios from all their plans.

The hit would have been equally significant, either way, for WellPoint in 2009. The company would have had to refund about $800 million, according to an IBJ analysis of data collected by the U.S. Senate's Commerce Committee and the California Department of Managed Care.

That’s roughly 2.5 percent of the $33 billion in medical premiums that WellPoint’s state-regulated subsidiaries collected last year. It also represents about 40 percent of WellPoint's 2009 adjusted pre-tax profit margin.

But being able to count its wellness efforts as medical expenses should help chip $300 million or more off that hit. And WellPoint is working to reduce its administrative costs also to help comply with the new rule.

WellPoint, which insures more Americans than any other company, sees itself in better position to absorb the hits than any of its competitors, especially smaller companies. Some analysts agree that size will matter more than ever in the new environment.

"We also believe that these rules favor the larger managed-care organizations over smaller groups, as the larger companies have better actuarial systems and larger pools of patients over which to spread the risk,” Les Funtleyder, a health care analyst and investor at Miller Tabak & Co., wrote in a note to clients.

WellPoint expects those advantages to lead many smaller companies to put themselves up for sale. And WellPoint intends to capitalize. It holds a $20 billion war chest (in cash and investments) that it intends to use to buy other companies in the next two years.

“It’s going to be very important we maintain enough capital at the parent, or enough liquidity and ability to lever up, to be able to do transactions, because I really do think they’re going to present themselves over the next couple of years,” WellPoint Chief Financial Officer Wayne DeVeydt said at a recent investor conference. “And I think you’ll see further consolidation in the industry, significantly more than what we have seen over the last four, five years.”

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. By Mr. Lee's own admission, he basically ran pro-bono ads on the billboard. Paying advertisers didn't want ads on a controversial, ugly billboard that turned off customers. At least one of Mr. Lee's free advertisers dropped out early because they found that Mr. Lee's advertising was having negative impact. So Mr. Lee is disingenous to say the city now owes him for lost revenue. Mr. Lee quickly realized his monstrosity had a dim future and is trying to get the city to bail him out. And that's why the billboard came down so quickly.

  2. Merchants Square is back. The small strip center to the south of 116th is 100% leased, McAlister’s is doing well in the outlot building. The former O’Charleys is leased but is going through permitting with the State and the town of Carmel. Mac Grill is closing all of their Indy locations (not just Merchants) and this will allow for a new restaurant concept to backfill both of their locations. As for the north side of 116th a new dinner movie theater and brewery is under construction to fill most of the vacancy left by Hobby Lobby and Old Navy.

  3. Yes it does have an ethics commission which enforce the law which prohibits 12 specific items. google it

  4. Thanks for reading and replying. If you want to see the differentiation for research, speaking and consulting, check out the spreadsheet I linked to at the bottom of the post; it is broken out exactly that way. I can only include so much detail in a blog post before it becomes something other than a blog post.

  5. 1. There is no allegation of corruption, Marty, to imply otherwise if false. 2. Is the "State Rule" a law? I suspect not. 3. Is Mr. Woodruff obligated via an employment agreement (contractual obligation) to not work with the engineering firm? 4. In many states a right to earn a living will trump non-competes and other contractual obligations, does Mr. Woodruff's personal right to earn a living trump any contractual obligations that might or might not be out there. 5. Lawyers in state government routinely go work for law firms they were formally working with in their regulatory actions. You can see a steady stream to firms like B&D from state government. It would be interesting for IBJ to do a review of current lawyers and find out how their past decisions affected the law firms clients. Since there is a buffer between regulated company and the regulator working for a law firm technically is not in violation of ethics but you have to wonder if decisions were made in favor of certain firms and quid pro quo jobs resulted. Start with the DOI in this review. Very interesting.

ADVERTISEMENT