New York Times Editorial: The Anthem Saga

New York Times Editorial: The Anthem Saga
Copyright by The New York Times
Published: May 9, 2010
http://www.nytimes.com/2010/05/10/opinion/10mon1.html?th&emc=th


Health insurers in many states have been seeking double-digit premium increases from people who buy their own policies directly from the companies rather than obtaining group coverage at work. In states where regulators have the power to curb excessive rate hikes, the increases are often rejected or negotiated down. In those where the regulatory laws are weak not much can be done beyond jawboning.

This hodgepodge of controls over premiums needs to be backstopped by a national law that would allow the federal government to block unjustified rate increases where state officials lack the authority to do so. Attempts to include such powers in the newly enacted health care reform law failed. And while the reform law does have provisions that should help restrain premiums, they lack the necessary teeth.

The story of Anthem Blue Cross’s effort to impose big premium hikes on people who buy their own policies in California, a state with weak regulations, shows why that is so necessary. It also shows how difficult it is to measure what’s reasonable and how a confusing mélange of factors can affect the setting of premiums.

Anthem outraged its enrollees and much of the public in February with a plan to raise premiums for individuals by an average of 25 percent. The company argued that it lost money on the individual market in California last year, that medical costs were escalating far faster than inflation, and that the recession was causing relatively healthy individuals to drop coverage, driving up average costs for the remaining, less healthy enrollees.

Anthem could have spread its losses more broadly to protect its individual buyers. The only reason the company lost money on the individual market is that it lost heavily on policies issued to participants in two state programs that required Anthem to cover people with pre-existing conditions and capped the premiums it could charge. It chose to offset further losses by imposing big hikes on other individual purchasers. For competitive reasons, it is unwilling to pass the costs on to employer-based group plans.

Meanwhile, an actuarial review commissioned by the state’s Department of Insurance found that Anthem also miscalculated the costs it would face in the individual market and the premiums it would need to offset them. Had the calculation been done correctly, Anthem would have needed an average increase in the individual market of only 15 percent, not the 25 percent it proposed.

There is no evidence that Anthem deliberately cooked the books. The errors were not detected by an internal company review or by an outside consultant hired by the company. They were found only when an independent firm hired by the state, Axene Health Partners, assigned four actuaries who spent 500 hours over 10 weeks analyzing calculations that it described as “extremely complex.”

It is daunting how much effort was required to dig out these discrepancies, and it’s revealing that it required a truly independent review to find them. Regulators everywhere are now on notice that they can’t assume company calculations are accurate and that they may need to hire their own consultants to probe deeply.

Anthem and its parent company, WellPoint, are scurrying to make amends. WellPoint has announced additional layers of internal review and will commission outside reviews of all of its 2010 rate filings in 14 states. Anthem is revising its rate proposals. But regulators won’t have a lot of power to force reductions beyond the rhetorical threat of further embarrassment.

Meanwhile, it is important to realize that the prime culprit in rising premiums is the escalating cost of medical care; the prices charged by health care providers and drug companies; and the ever-wider use of medical services, much of it unnecessary. Until those costs are contained, it will be hard to truly restrain premiums.