With the relationship between President Barack Obama’s administration and the health insurance industry turning sour as the Patient Protection and Affordable Care Act made its way through Congress, Health and Human Services Secretary Kathleen Sebelius turned up the heat on insurers’ rate hikes.
The first salvo came in early February, when Sebelius sent a strongly worded letter to Anthem Blue Cross in California after the insurer proposed a 39 percent rate hike.
“These extraordinary increases are up to 15 times faster than inflation and threaten to make healthcare unaffordable for hundreds of thousands of Californians, many of whom are already struggling to make ends meet in a difficult economy,” Sebelius said in a letter to Leslie Margolin, Anthem's president.
To drive home her point, Sebelius highlighted Anthem parent company Wellpoint’s profits, which amounted to more than $2.7 billion in the final quarter of 2009. “Your company’s strong financial position makes these rate increases even more difficult to understand,” she said.
Robert Zirkelbach, press secretary for America's Health Insurance Plans, responded by saying Anthem’s profits needed to be put into context. Using data from public companies, Zirkelbach showed that insurance companies’ average net profit margin was 3.4 percent, far below the 11.1 percent average net profit margin for the entire healthcare sector.
In a well-publicized White House meeting in March, Sebelius kept up the pressure, asking CEOs from the UnitedHealth Group, WellPoint, Aetna, the Healthcare Service Corp. and CIGNA HealthCare, to justify their rate hikes.
“It’s time for these insurance company CEOs to do their part to make the system more transparent for the American people,” she said in a follow-up letter to the CEOs. “If insurance companies are going to raise rates, the least they can do is tell us why.”
One month later, WellPoint again found itself in Sebelius’ crosshairs for allegedly dropping coverage of women with breast cancer. Soon afterwards, Anthem Blue Cross pulled its proposed 39 percent rate increase in California after auditors found they were based on unreasonable assumptions about the rate at which medical costs are increasing.
As a result, Sebelius took the unprecedented step of writing a letter urging governors and insurance commissioners to re-examine any proposed rate increases by WellPoint in their states.
“Working with my colleagues on the state level, we are sending a message to insurers that it is time to for them to put their customers first,” she said. “I sent this letter to encourage governors and insurance commissioners to follow California’s example and check the math on rate increases being proposed in their states and to ensure they have the strong regulatory tools they need to fight unreasonable increases.”
To further encourage state regulators, the HHS launched in May the Office of Consumer Information and Insurance Oversight and tasked it with providing grants to states with the best insurance oversight programs.
Throughout the process, insurance leaders and AHIP contended they were being made the villains when there were other more significant factors causing healthcare costs to skyrocket. Zirkelbach pointed out that insurers’ total costs, including all overhead, marketing and profits, account for only 4 percent of the total healthcare spend annually.
“We need to become even more efficient, but reform also needs to address the other 96 percent (of spending),” he said.