Feb. 24, 2010 -- Democrats seemingly in shock from the recent loss of momentum for a major health care overhaul know a good thing when they see it — and at a House subcommittee hearing Wednesday, they pushed hard to build the case that the recent headline-grabbing rate hike of up to 39 percent planned by the insurer Anthem is just a taste of things to come for America's middle class.
Rejecting Anthem's defense that it's simply responding to a deteriorating risk pool and rising medical costs in raising its rates in the individual market in California, California Democrat Henry A. Waxman said that a review of some 3,000 internal company documents depicts an insurer intent on hitting profit targets and maintaining lavish perks and salaries rather than cutting middle-class Americans a break in a year that saw the biggest economic downturn in the United States in decades.
"The documents also tell a story of potential huge, new premium rate increases to come," said Waxman at the hearing by the House Energy and Commerce Oversight and Investigations Subcommittee. Waxman chairs the full Energy and Commerce Committee.
"We cannot go down this road forever," he said. "It is breaking our middle class. And it will bankrupt our nation." The witnesses at the hearing weren't hard luck cases but rather middle-class Californians subject to the 39 percent hike. Their testimony was meant to show that middle-class Americans without access to job-based coverage now face premium payments rivaling mortgage payments in size and trade-offs such as not being able to send their kids to college.
The panel's new top Republican member, Rep. Michael C. Burgess of Texas, sought to step on the story line Democrats are developing as President Obama prepares for Thursday's health care "summit" meeting with Republicans on health care.
Burgess derided the summit as no more than a " bipartisan photo-op," not a genuine effort to develop bipartisan legislation. But Burgess repeatedly expressed puzzlement as to why Anthem would pursue such a big increase at a pivotal time in the debate.
"You had to know this would be trouble," Burgess prodded Wellpoint executive Angela Braly, who oversees the Anthem subsidiary. Braly didn't deny it, but shrugged off the fallout as par for the course. "It's always a challenging issue to raise rates," she said. Braly also suggested that the increases are necessary to preserve insurance as a viable business model for the tens of millions of Americans enrolled in Wellpoint plans.
The tactics cited by Waxman and Subcommittee Chairman Bart Stupak, D-Mich., are arguably the standard stuff of corporate America — setting profit targets and negotiating by asking for more than you expect to get.
But Waxman painted a different picture. "WellPoint says that its rate increases are absolutely necessary," he said in his opening statement. "But its internal company documents describe a plan to build in 'a cushion' to 'allow for negotiations.' The company told its board of directors that its average 'rate ask' would be 25 percent, but that its final "'rate increase' would be only 20 percent.
"The documents we have reviewed show WellPoint is proposing its highest increases on its more generous plans," Waxman added. "At the same time, it is actively developing new products, called 'downgrade options,' that reduce benefits for its policyholders."
"This 'purging' process cuts coverage for WellPoint policyholders when they need it most: when they get sick," he said.
"And the WellPoint documents point to a future of even higher rate increases. WellPoint told committee staff that WellPoint voluntarily capped its maximum rate increases at 39 percent. If WellPoint had not done this, some policyholders could have faced rate increases of over 200 percent."
Stupak said that while the hearing focused on WellPoint's proposed premium increases in California, "this is a national problem. According to a disturbing report released today by the Center for American Progress, WellPoint has implemented or proposed double-digit rate increases in 11 of the 14 states in which they operate.
"But as residents of my home state know, the problem is not limited to WellPoint subscribers. Some Michigan policyholders are facing a proposed rate increase of 56 percent in the individual market."
Stupak complained that "hardworking Americans are asked to increase their premiums for the benefit of Wellpoint investors."
Braly said that while it's tempting in the current debate to scapegoat insurers, "doing so would be the triumph of sound bites over substance." Insurance industry profits account for less than a penny of every dollar Americans spend on health care, she said. "Isn't it time to ask what are we going to do about the other 99 cents?"
The rise in the underlying costs is the elephant in the room, she said. "We're the tail on the elephant, and we need to address the elephant," she said.
Stupak pressed Wellpoint on internal information saying it planned to raise its profit margins to 7 percent, but Wellpoint chief actuary Cynthia Miller said the company is losing money on many of its policies and that the hefty rate hike only applies to about 5 percent of Wellpoint's business. She indicated that raising profits 7 percent would only bring profit margins to less than 2 percent.
Braly said it's important to maintain profit margins to keep the insurance business going and that insurer margins are only about 4.8 percent, much less than those of drug companies and on a par with community hospitals.
"I don't mind you making a profit, but at the end of the year, 2009 a horrible year, you still made two point something billion dollars, and that's not enough?" Stupak asked.
"And we serve 34 million Americans across the country, and we feel it is appropriate for our business to be sustained so we can be there for those members," Braly said.
But insurers are going to play defense whether or not they can make the case that policy makers have to be realistic about business necessities. Republican Sen. Charles E. Grassley of Iowa joined with Democrat Max Baucus of Montana Wednesday in writing to Wellpoint and other insurers seeking answers on why they are increasing rates. On Tuesday, Grassley wrote to the insurer Wellmark asking that insurer to explain a 21 percent rate hike in Iowa.
In addition, HHS Secretary Kathleen Sebelius wrote Wednesday to the CEOs of Wellpoint, Aetna, UnitedHealth Group and Cigna inviting them to a March 3 meeting at HHS to discuss their premiums.
Rejecting Anthem's defense that it's simply responding to a deteriorating risk pool and rising medical costs in raising its rates in the individual market in California, California Democrat Henry A. Waxman said that a review of some 3,000 internal company documents depicts an insurer intent on hitting profit targets and maintaining lavish perks and salaries rather than cutting middle-class Americans a break in a year that saw the biggest economic downturn in the United States in decades.
"The documents also tell a story of potential huge, new premium rate increases to come," said Waxman at the hearing by the House Energy and Commerce Oversight and Investigations Subcommittee. Waxman chairs the full Energy and Commerce Committee.
"We cannot go down this road forever," he said. "It is breaking our middle class. And it will bankrupt our nation." The witnesses at the hearing weren't hard luck cases but rather middle-class Californians subject to the 39 percent hike. Their testimony was meant to show that middle-class Americans without access to job-based coverage now face premium payments rivaling mortgage payments in size and trade-offs such as not being able to send their kids to college.
The panel's new top Republican member, Rep. Michael C. Burgess of Texas, sought to step on the story line Democrats are developing as President Obama prepares for Thursday's health care "summit" meeting with Republicans on health care.
Burgess derided the summit as no more than a " bipartisan photo-op," not a genuine effort to develop bipartisan legislation. But Burgess repeatedly expressed puzzlement as to why Anthem would pursue such a big increase at a pivotal time in the debate.
"You had to know this would be trouble," Burgess prodded Wellpoint executive Angela Braly, who oversees the Anthem subsidiary. Braly didn't deny it, but shrugged off the fallout as par for the course. "It's always a challenging issue to raise rates," she said. Braly also suggested that the increases are necessary to preserve insurance as a viable business model for the tens of millions of Americans enrolled in Wellpoint plans.
The tactics cited by Waxman and Subcommittee Chairman Bart Stupak, D-Mich., are arguably the standard stuff of corporate America — setting profit targets and negotiating by asking for more than you expect to get.
But Waxman painted a different picture. "WellPoint says that its rate increases are absolutely necessary," he said in his opening statement. "But its internal company documents describe a plan to build in 'a cushion' to 'allow for negotiations.' The company told its board of directors that its average 'rate ask' would be 25 percent, but that its final "'rate increase' would be only 20 percent.
"The documents we have reviewed show WellPoint is proposing its highest increases on its more generous plans," Waxman added. "At the same time, it is actively developing new products, called 'downgrade options,' that reduce benefits for its policyholders."
"This 'purging' process cuts coverage for WellPoint policyholders when they need it most: when they get sick," he said.
"And the WellPoint documents point to a future of even higher rate increases. WellPoint told committee staff that WellPoint voluntarily capped its maximum rate increases at 39 percent. If WellPoint had not done this, some policyholders could have faced rate increases of over 200 percent."
Stupak said that while the hearing focused on WellPoint's proposed premium increases in California, "this is a national problem. According to a disturbing report released today by the Center for American Progress, WellPoint has implemented or proposed double-digit rate increases in 11 of the 14 states in which they operate.
"But as residents of my home state know, the problem is not limited to WellPoint subscribers. Some Michigan policyholders are facing a proposed rate increase of 56 percent in the individual market."
Stupak complained that "hardworking Americans are asked to increase their premiums for the benefit of Wellpoint investors."
Braly said that while it's tempting in the current debate to scapegoat insurers, "doing so would be the triumph of sound bites over substance." Insurance industry profits account for less than a penny of every dollar Americans spend on health care, she said. "Isn't it time to ask what are we going to do about the other 99 cents?"
The rise in the underlying costs is the elephant in the room, she said. "We're the tail on the elephant, and we need to address the elephant," she said.
Stupak pressed Wellpoint on internal information saying it planned to raise its profit margins to 7 percent, but Wellpoint chief actuary Cynthia Miller said the company is losing money on many of its policies and that the hefty rate hike only applies to about 5 percent of Wellpoint's business. She indicated that raising profits 7 percent would only bring profit margins to less than 2 percent.
Braly said it's important to maintain profit margins to keep the insurance business going and that insurer margins are only about 4.8 percent, much less than those of drug companies and on a par with community hospitals.
"I don't mind you making a profit, but at the end of the year, 2009 a horrible year, you still made two point something billion dollars, and that's not enough?" Stupak asked.
"And we serve 34 million Americans across the country, and we feel it is appropriate for our business to be sustained so we can be there for those members," Braly said.
But insurers are going to play defense whether or not they can make the case that policy makers have to be realistic about business necessities. Republican Sen. Charles E. Grassley of Iowa joined with Democrat Max Baucus of Montana Wednesday in writing to Wellpoint and other insurers seeking answers on why they are increasing rates. On Tuesday, Grassley wrote to the insurer Wellmark asking that insurer to explain a 21 percent rate hike in Iowa.
In addition, HHS Secretary Kathleen Sebelius wrote Wednesday to the CEOs of Wellpoint, Aetna, UnitedHealth Group and Cigna inviting them to a March 3 meeting at HHS to discuss their premiums.