There has been a great deal of media attention paid to President Obama's attacks on rate increases for individual health care increases that are unreasonable given the company's overall profit level. Wellpoint the parent company of Anthem in California was singled out.
Savvy insurance professionals are familiar with the concept of the death spiral, which occurs when good risks leave the risk pool leaving only poor risks, leading to higher premiums, leading to more attrition from good risks, until the pool is drained. The concept of a death spiral is evidently foreign to former Kansas Insurance Commissioner Katherine Sebelius who is now Secretary of Health and Human Services. The death spiral is what is happening at Anthem according to an AP story by Tom Murphy;
The federal inquiry was launched earlier this week after the premium increase planned for some customers who buy individual policies from WellPoint's Anthem Blue Cross subsidiary was widely publicized.Congress also has asked for information on the increases and requested testimony from WellPoint CEO Angela Braly at a Feb. 24 hearing.
"When the healthy leave and the sick stay, that is going to dramatically drive up costs," WellPoint executive Brian Sassi said in an interview with The Associated Press.
Sassi is president of the consumer business unit for WellPoint, the largest publicly traded health insurer based on membership. WellPoint runs Blue Cross and Blue Shield plans in 14 states and Unicare plans in several others.
Sebelius had called the increases "extraordinary" and told the insurer in a letter she was disturbed to learn about them. She also has demanded that the insurer answer questions about how much of a profit it will make from the hike.
Sassi said in the letter to Sebelius that the Anthem Blue Cross unit at the heart of the inquiry lost millions in 2009. He declined to offer specifics in an interview.
The executive said Anthem Blue Cross set some of its prices, or premiums, too low last year for the claims it received. It set 2010 prices based on what it thinks future prices will be.
"We need to make sure that our premiums cover the cost of claims," he said.
Hat tip to Curt Langley who tweeted a summary from The Baker Institutes Health economics fellow Vivian Ho: "Affordable insurance is dying in a death spiral." http://bit.ly/cGaCVW . Ms. Ho got it exactly right yet somehow our President and his Secretary of Health and Human Services cannot seem to admit health insurance businesses have the right to be profitable across both individual and group segments without facing scrutiny. Or are we simply witnessing more arrogant political posturing? Call me a cynic but my moneys on the latter. At the end of the day when the pool is drained at Anthem there will remain only a few turds no one can afford to get in the water with due to the cost.
It is ironic that nowhere in our media is it being reported that Obamacare as it will be presented at this weeks Healthcare summit will result in an average increase in premiums of 26% as individuals who have purchased catastrophic health policies on their own will see their premiums rise as the government requires their policies include mandated benefits that will explode their premiums. Where is the hearing on that?