As Anthem Blue Cross Sends Profits To Wellpoint, It Plans Hefty Rate Hikes For Californians

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Even as the health insurance giant turns over hundreds of millions in profits to its parent company, it defends plans to raise rates for Californians whose care last year exceeded premiums paid.

Health insurance giant Anthem Blue Cross said it was raising rates on thousands of individual policyholders in California because the cost of their medical care exceeded the premiums they paid last year.

At the same time, other parts of Anthem reaped a profit. A Times analysis of the company’s regulatory filings shows that $525 million in Anthem’s earnings in 2009 was shipped to its corporate parent WellPoint Inc. The analysis was not disputed by Anthem.

Anthem Blue Cross has been so profitable that, since WellPoint acquired it in 2004, it has contributed more than $4.5 billion to the parent company’s bottom line.

Critics say some of those gains should have been kept in California and used to cover the losses on Anthem’s individual policies. Instead, the company turned to individual policyholders to make up the losses with rate increases of up to 39%.

WellPoint Executive Vice President Brad Fluegel said the company cannot dip into profit from one insurance line to keep another line afloat.

"It’s not sustainable to have our premiums be insufficient to pay our claims expenses," he said. "To have [profit] be applied to premiums, you would be under-pricing your product and essentially losing money. In order to have a sustainable and viable business, you have to have your premiums reflect your underlying medical costs."

But some lawmakers say they are aghast. Former California Insurance Commissioner John Garamendi, now a Democratic congressman from Walnut Creek, said it was unconscionable for Anthem to impose steep premium hikes on individuals when the company as a whole was quite profitable.

"The extraordinary greed of Anthem/WellPoint Blue Cross is a clear indication that this company has put profit before people," said Garamendi, who as California insurance commissioner presided over the merger. "People need to be able to get out of the shark pool with a public-option lifeboat."

Rep. Jackie Speier (D-Hillsborough) said it looked like Anthem and WellPoint were "playing a shell game" to boost their profits and justify rate hikes.

"They are moving all the profits to the holding company," she said. "And then they cry, ‘Woe is me. We’re not making enough money.’ They are just moving the money to hide the jackpot."

Committees of the Legislature and Congress are set to grill Anthem and WellPoint officials this week over the necessity of the rate hikes.

WellPoint has 34-million customers in Blue Cross plans in 14 states, including 8 million in California, and earned $4.7 billion on $60 billion in revenue last year.

"They seem to be quite profitable, and that seems to be their major interest," said Rep. Henry Waxman (D-Beverly Hills), who chairs the Committee on Energy and Commerce.

 WellPoint Chief Executive Angela Braly is set to appear Wednesday before a subcommittee of the panel Waxman chairs. The company needs to prove that the additional premium revenues, which, in some cases, are set to increase at a far larger rate than average medical costs, are necessary, Waxman said.

"We’ve heard that claim," he said. "We want to test that."

The issue of Anthem earnings boosting WellPoint’s profit has been an issue since 2004. When WellPoint set its sights on Blue Cross of California, consumer advocates and regulators sought to block the acquisition out of fear that an out-of-state corporate owner would put profit ahead of consumers.

To placate regulators and win approval of the deal, WellPoint agreed to a complicated formula limiting the amount of money that it would siphon from premiums paid by California consumers. Regulators hoped that the limits on profit-taking would ease the upward pressure on premiums.

Those limits expired at the end of 2007. When WellPoint took $1.2 billion in dividends that year, California Department of Managed Health Care chief Cindy Ehnes accused the company of treating the state like "its own ATM machine" at the expense of individuals struggling to afford health insurance.

But neither Ehnes nor the state Department of Insurance has ever found anything wrong with the profits WellPoint collects from Anthem.

But not all the profits went to the corporate parent. Anthem has accumulated more than $1 billion in cash — in excess of what regulators require the company to reserve to cover outstanding claims, The Times found.

And, between 2005 and 2007, Anthem made annual payments of more than $2 billion a year to affiliated companies for unspecified services, according to an analysis of regulatory filings by Consumer Watchdog. The Santa Monica-based advocacy group has urged regulators to investigate the transfers.

Alyssa Schiffmann, a self-employed bookkeeper, recently got a notice that her Blue Cross coverage is set to increase to $558 a month from $401. Schiffmann, 35, had surgery a few years ago and is convinced she can’t go without medical coverage.

"The healthcare companies are making record profits, and it’s unsustainable for customers like me," she said. "Our healthcare system puts profits before healthcare, and this needs to change."

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Consumer Watchdog
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