Legislative hearing results in testy exchange with lawmakers
SACRAMENTO, CA — Executives from Anthem Blue Cross of California said Tuesday that the company’s proposed rate hikes for individual policyholders reflect anticipated medical costs for 2010, but their testimony was met with skepticism from state lawmakers.
Leslie Margolin, Anthem’s president, told a California Assembly committee that rate hikes of up to 39% and beyond are necessary because of spiraling medical, drug and hospital costs. She acknowledged the insurer may lose some members as a result.
"The current situation in health care is unacceptable," Margolin said. "Because of the escalation of costs, people are going to go without care and coverage."
Margolin appeared before the California Assembly’s Committee on Health to defend high rate hikes, which have become a lightning rod for renewed efforts to formulate health-care reform. The company’s premium increases were due to take effect March 1, but Anthem agreed to push that back to May 1 in light of public outcry.
The rate increases have captured the attention of lawmakers from Sacramento to Washington, D.C., as well as President Obama, who cited them as a reason for proposing federal oversight on all health-insurance rate increases. Anthem’s parent, WellPoint Inc. (NYSE:WLP) , is being called before Congress on Wednesday to justify the hikes.
On Monday, California Insurance Commissioner Steve Poizner accused the company of more than 700 violations of state law, including failure to pay medical claims on time, not responding to regulators and misrepresenting policy provisions to customers. The company faces a fine of at least $7 million.
Testy Exchange
While Margolin defended her company’s strategy, she was met with a cool greeting from committee members, and got into a testy exchange with health panel chairman Assemblyman Dave Jones, D-Sacramento. Jones wondered whether the company was doing all it could to reduce costs, and alluded to the insurance department’s findings.
"How much has Blue Cross saved, by reducing reimbursement to medical providers in 2009?" Jones asked Margolin.
"I don’t know," Margolin said.
Jones later asked whether the company has resorted to salary cuts or layoffs in order to save on expenses. Margolin replied that she didn’t know how many positions have been cut.
Then Jones asked: "What is the total compensation of the top 10 salaried employees of Blue Cross."
"I don’t know that answer. I know generally what the compensation is," Margolin said. "The compensation of members of my team is market-based. It seems fair. It seems appropriate for what we do."
Further, Jones also took the company to task over its profit margins. He questioned whether the 2.5% to 5% margin that Anthem claims is correct.
"I’m not sure it’s that low. It’s billions and billions of dollars at a time Californians face record unemployment," Jones said, before finally asking Margolin: "Have you no shame?"
After a pause, Margolin replied: "The question is one that is disappointing to me on my own behalf and on behalf of every single associate at Anthem Blue Cross. These people work so hard."
Consumer Faces Hikes
Others appearing at the hearing included representatives of industry trade groups, consumer watchdogs and representatives of the two state regulatory bodies for health-care plans, the California Department of Insurance and the state Department of Managed Care.
Consumers also showed up to voice their displeasure. Laurel Kaufer, a self-employed single mother of two and longtime Anthem customer, said her bare-bones plan was set to rise 34% to $1,102 per month on top of a 22% increase in rates over the last two years.
"If Anthem’s new rate increase is permitted, I will spend a minimum of $14,724 before coverage actually kicks in for anything but a standard office visit," Kaufer said. "I can’t afford to seek medical care whenever we see the need."
At the conclusion of Tuesday’s hearing, Jones reiterated his call to extend the state’s Proposition 103, which governs rate hikes for auto and property insurance, to include health plans.
It was reported earlier this month that Anthem plans to increase rates by an average of 25% and up to 39% and beyond in some cases. MarketWatch discovered that in at least one case, though, a policyholder saw her rates go up 69%. See story on health-care rate hikes: http://www.marketwatch.com/story/health-care-shocker-policy-premium-goes-up-69-2010-02-19
That policyholder, Lori Creasey, a Huntington Beach, Calif.-based attorney, said she bought two individual policies for her healthy, college-age sons. She said the company isn’t delaying the enactment of that price increase.
Anthem, however, is not the only insurer under the gun for double-digit price increases. On Tuesday, U.S. Sen. Charles Grassley, R-Iowa, called upon Wellmark Blue Cross and Blue Shield to justify rate hikes of up to 22%, with an average increase of 18%. Grassley is the ranking Republican member of the Senate Committee on Finance.
Wellmark is the insurer in Grassley’s home state, and announced in 2007 that its goal was to become a pure non-profit.
In a letter to Wellmark, Grassley pointed out that federal officials say health-care spending increased by 5.7% last year.
"I understand that the individual and small-group health insurance markets face unique challenges regarding adverse selection, and that the recent economic downturn has likely exacerbated these challenges," Grassley said. "However, I also believe Iowans deserve a clear explanation for why premiums are increasing at a much faster rate than national health-care spending."
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