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Insurance Company Profits and Rate Hikes Targeted Again

By Jane Norman, CQ HealthBeat Associate Editor

May 13, 2010 -- Democrats' full-throttle assault on the health insurance industry continued unabated Thursday as part of an unfolding campaign to portray the new health care law as a necessary antidote for insurer abuses.

Sen. Dianne Feinstein, D-Calif., and Rep. Jan Schakowsky, D-Ill., renewed their call for action on Feinstein's legislation to cap rate hikes, though Feinstein acknowledged in a conference call with reporters that she likely can't gain 60 votes in the Senate for her measure (S 3078). "This is hard, and, candidly, I'm not sure at this point," Feinstein said.

Republican votes likely would be needed and "that's the difficult part," she said.

Meanwhile, two senior senators — one a Republican — shipped off a letter to health insurer WellPoint Inc. demanding a detailed explanation of the assumptions that went into a proposed rate increase rejected by California regulators because of its miscalculations.

The WellPoint letter from Finance Chairman Max Baucus, D-Mont., and committee ranking Republican Charles E. Grassley of Iowa follows a barrage of criticism of WellPoint by lawmakers and the Obama administration over the proposed premium increase of up to 39 percent, as well as to the company's cancellations of policies in the individual market.

WellPoint has fought back, and CEO Angela Braly wrote to President Obama last weekend in protest after he criticized WellPoint during his weekly radio address.

The senators said Thursday's letter is a follow-up to a February letter in which they initially questioned the proposed rate increase. Now, they say, they want more details about how the proposal by Anthem Blue Cross, which is part of WellPoint, was so flawed that it was rejected by the California Department of Insurance.

"Shoddy calculations don't excuse 40 percent rate hikes," Baucus said in a statement. "We will continue pressing for answers and use our full oversight authority to protect American consumers from unreasonable premium increases."

Grassley said, "The errors and questionable assumptions discovered by the independent actuary make it clear that WellPoint's rates and the process used to come up with those rates deserve a great deal of further scrutiny."

The senators said an independent auditor hired by the state of California found serious problems with the proposed rate increase and indicated it may have been overstated by as much as 10 percent.

They asked for a detailed explanation of the source and the extent of the miscalculations, steps to be taken to address problems in the methodologies, internal and external processes that WellPoint has in place to review rate filings, and information on challenges in other states. The committee leaders asked for a reply by May 28.

Schakowsky is "very optimistic" that she and Feinstein will be able to push through limits on premium increases, she said in a call with reporters that was organized by Health Care for America Now, which advocated for the health care law. She called WellPoint a "poster child for unbridled greed" and said the measure is supported by the Obama administration. "We're looking at every possible vehicle to move it forward," she said.

But Feinstein said some members of the Senate believe that regulatory authority over rate hikes should remain with the states and they are resistant to allowing the federal government additional regulatory power. She said it probably would not be offered as an amendment to the financial regulatory bill moving through the Senate, because it would be regarded as not pertinent.

Feinstein's bill would allow the secretary of Health and Human Services to review premium increases in states where the insurance commissioner does not have sufficient authority to do so, and to block or modify them before they go into effect. The secretary also could take corrective actions, such as providing rebates to consumers affected by large increases.

The health insurance industry, as it has in the past, argued that premium increases are due to underlying cost drivers that they cannot control. America's Health Insurance Plans (AHIP) distributed a chart showing that U.S. spending on prescription drugs rose by more than 100 percent between 2000 and 2009, physician and clinical services by 82 percent and hospital care by 30 percent. Additionally, the trade group said, the growth in premiums tracked directly with the growth in benefits, with spending on each rising 72 percent from 2000 to 2008.

AHIP spokesmen also pointed out that the 13 health plan companies on the Fortune 500 list had profit margins on average of 3.19 percent in 2009 and 2.3 percent for the same companies in 2008. Drug companies had average profits of 24 percent in 2009, and medical device makers topped 11 percent, AHIP said.

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