Obama team raises pressure on health insurers

02/18/2010 – 17:47

WASHINGTON, Feb 18 (Reuters) – The Obama administration ratcheted up pressure on health insurers on Thursday, saying some planned double-digit rate hikes while making billions in profits and paying executives multimillion-dollar salaries.

In a report by the Department of Health and Human Services, the administration said: “These massive increases are disturbing examples of the problems that make reforming our health insurance system more important than ever.”

The report came as President Barack Obama tries to revive stalled healthcare reform plans and two weeks after Health Secretary Kathleen Sebelius demanded Anthem Blue Cross of California, a unit of Wellpoint Inc (WLP.N), provide information about plans to boost premiums by up to 39 percent.

Sebelius said the agency’s report showed other insurers also were seeking “extreme premium increases” while Americans struggled through an economic downturn. “We know that insurance companies are not suffering that same kind of downturn,” she said at a news conference.

After the report was released, the Morgan Stanley Healthcare Payor index of insurer share prices fell 1.4 percent, underperforming the broader market.

Profits for the 10 largest insurance companies rose 250 percent from 2000 to 2009, 10 times faster than inflation, the report said.

The top five — WellPoint, UnitedHealth Group Inc (UNH.N), Cigna Corp (CI.N), Aetna Inc (AET.N) and Humana Inc (HUM.N) — took combined profits of $12.2 billion, up 56 percent from 2008, it said.

The chief executives of the top five received $24 million on average in 2008, the report said.

A spokesman for the health insurance industry’s trade group — America’s Health Insurance Plans spokesman Robert Zirkelbach — said, “The soaring cost of medical care” was driving the increase in premiums, while the percentage of premiums going toward administrative costs and profits had declined.

Healthcare spending in the United States is about $2.3 trillion annually, or about 16 percent of the U.S. economy. Despite the high spending levels, some 46 million people living in the United States are uninsured.

HEALTHCARE REFORM EFFORT

Work on healthcare reform, Obama’s top domestic priority, ground to a halt in the Democratic-controlled Congress last month.

The House of Representatives and the Senate had passed different versions of healthcare reform and were trying to reconcile the bills when Democrats lost the Massachusetts Senate seat previously held by Edward Kennedy, who died last year. That has given rival Republicans the ability to use procedural hurdles to block legislation.

The Obama administration has invited Democratic and Republican lawmakers to a Feb. 25 healthcare conference and promised to release a proposal for a legislative overhaul before the event.

“The idea is that it will take some of the best ideas and put them into a framework moving forward,” Sebelius said of Obama’s proposal.

The Democrats’ attacks on insurers escalated after the Los Angeles Times reported in early February that Anthem Blue Cross planned to increase individual market premiums by up to 39 percent in the coming month. After Sebelius challenged the decision, the company delayed the move for two months.

The HHS report cited several companies as having planned big premium hikes in recent years. Anthem sought them in several different Northeastern states, the report said, while Blue Cross/Blue Shield of Michigan wanted a 56 percent increase for plans sold on the individual market.

UnitedHealth, Tufts and Blue Cross asked for 13-to-16-percent increases in Rhode Island, and some plans in the individual market in Washington increased premiums by 40 percent until the state imposed stiffer regulations, the report said.

“Leading experts have predicted that without reform, these increases will continue,” the report said, “and the federal government and most states don’t have the legal authority to block or reduce health insurance rate increases.”

Republican Representative Dave Camp said the reported premium increases were “unacceptable” but added “the reforms Democrats in Congress are pursuing would actually make the current situation worse by making coverage more expensive.”

The House Energy and Commerce Committee has called Wellpoint Chief Executive Angela Braly to testify about the proposed rate hikes in California at a hearing next week.

On Thursday, the committee asked Braly in a letter to explain a “seeming conflict” between Wellpoint’s public explanation and company data.

Wellpoint has attributed the increases in part to healthy people dropping coverage in the recession. But data the company gave to the National Association of Insurance Commissioners showed enrollment in the individual market in California “appears to have increased significantly,” the letter said.

Wellpoint spokeswoman Kristin Binns said the company was reviewing the letter.

By Lisa Richwine and David Alexander, Reuters
(Additional reporting by Lewis Krauskopf in New York; Editing by Lisa Von Ahn and Cynthia Osterman)