The Wall Street Journal
Obama Administration Urges States to Recheck Health Insurer's Rates After California Flub
The Obama administration's top health official is urging state regulators and lawmakers to investigate whether WellPoint Inc. made mathematical errors in justifying sharp rate increases around the country.
In a letter being sent to state insurance commissioners and governors late Tuesday, Health and Human Services Secretary Kathleen Sebelius calls for a national inquiry into the data underpinning rising health-insurance costs. Ms. Sebelius is seizing on WellPoint's decision last week to withdraw a request for up to a 39% price increases on individual plans in California after an actuary hired by the state found several mistakes in the filing.
"In light of this recent finding, I urge that, to the extent you have authority to do so, you re-examine any WellPoint rate increases in your state," Ms. Sebelius wrote. "Even small errors can mean unaffordable premiums for policyholders."
WellPoint has become a lightening rod for criticism over rising premiums. Chief Executive Angela Braly was called before Congress in February to defend its California rate increases. At that hearing, Ms. Braly pointed to mushrooming charges by hospitals, doctors and drug companies that are passed through to consumers in their insurance bills.
Other insurance executives were hauled into the White House in March to explain their prices, but WellPoint has borne the brunt of criticism in part because it is the biggest seller of plans to individuals and small businesses, and because of the size of its California rate boost.
In investigating the California rate filing, that state's Department of Insurance found mathematical mistakes, such as overestimating future medical costs and double-counting the effect of its policyholders aging, according to insurance commissioner Steve Poizner, a Republican candidate for governor.
A WellPoint spokeswoman, Kristin Binns, said she couldn't comment on Ms. Sebelius's letter since she has not seen a copy. WellPoint plans to refile the rates this month to correct "inadvertent miscalculations" in estimating future medical costs, and to reflect a standard in the health overhaul that insurers spend 80% of premiums on medical expenses, ahead of required implementation of the standard next year.
"The miscalculation was unique to the individual business rate filing in California," said Ms. Binns, who pointed out that many states have conducted rate reviews in which the company's actuarial conclusions were upheld.
Insurers have warned that the new health law will do little to contain rapidly rising prices and say they will keep raising rates to cover costs. Ms. Sebelius's request is an indication that the administration is looking to state regulators to make sure a central promise of its health overhaul—reducing the burden of health-care costs on consumers—doesn't go unfulfilled.
Ms. Sebelius's letter urges states to tighten their review processes, noting that new health law makes available $250 million to states for that purpose. Some state officials have already started acting in the wake of WellPoint's admission last week.
Connecticut Attorney General Richard Blumenthal said he will ask his state's insurance regulator Wednesday to comb through a local WellPoint unit's request to raise individuals' rates by 24% on average last year. Connecticut's insurance department had granted increases of up to 20%, said a spokeswoman for Mr. Blumenthal.
"If there were any similar errors the rates should be reduced," said Mr. Blumenthal, a Democrat who is running for a U.S. Senate seat in Connecticut.
In New York, where a WellPoint unit raised individuals' premiums by about 17% last year, actuaries are pulling out the company's filings and discussing the merits of the increases, said John Powell, assistant deputy superintendent for health at the state's insurance department. "We're going to see if any alarms go off for us," said Mr. Powell.
WellPoint said both New York and Connecticut have rate oversight processes in place to double-check the actuarial assumptions in companies' filings.
The issue extends beyond WellPoint, which is hardly the only insurer to request big rate increases and push California health insurance quotes.
"We're considering additional action on other companies' rate increases as well," Mr. Blumenthal said.
In Iowa, the insurance division recently asked an outside actuary to review the roughly 18% price increases proposed by Wellmark Blue Cross & Blue Shield, a local insurer. The review found no errors and the rates went into effect May 1, but the insurance division is now asking for independent reviews of all new rate filings.
Mr. Poizner in California said he plans to send the findings of the independent actuary to insurance commissioners in other states this week.
The National Association of Insurance Commissioners also expects its members to take a second look at filings of all insurers in the wake of WellPoint's errors in California, including an impact on New York health insurance quotes.
"We're being super cautious to make sure every increase is justified," said Sandy Praeger, the Kansas insurance commissioner and head of NAIC's health-insurance and managed-care committee.
Whether or not the companies can succeed in raising prices is critical on Wall Street. In an earnings report last week, WellPoint told analysts that it lost money on the individual business in California in March.
In a letter being sent to state insurance commissioners and governors late Tuesday, Health and Human Services Secretary Kathleen Sebelius calls for a national inquiry into the data underpinning rising health-insurance costs. Ms. Sebelius is seizing on WellPoint's decision last week to withdraw a request for up to a 39% price increases on individual plans in California after an actuary hired by the state found several mistakes in the filing.
"In light of this recent finding, I urge that, to the extent you have authority to do so, you re-examine any WellPoint rate increases in your state," Ms. Sebelius wrote. "Even small errors can mean unaffordable premiums for policyholders."
WellPoint has become a lightening rod for criticism over rising premiums. Chief Executive Angela Braly was called before Congress in February to defend its California rate increases. At that hearing, Ms. Braly pointed to mushrooming charges by hospitals, doctors and drug companies that are passed through to consumers in their insurance bills.
Other insurance executives were hauled into the White House in March to explain their prices, but WellPoint has borne the brunt of criticism in part because it is the biggest seller of plans to individuals and small businesses, and because of the size of its California rate boost.
In investigating the California rate filing, that state's Department of Insurance found mathematical mistakes, such as overestimating future medical costs and double-counting the effect of its policyholders aging, according to insurance commissioner Steve Poizner, a Republican candidate for governor.
A WellPoint spokeswoman, Kristin Binns, said she couldn't comment on Ms. Sebelius's letter since she has not seen a copy. WellPoint plans to refile the rates this month to correct "inadvertent miscalculations" in estimating future medical costs, and to reflect a standard in the health overhaul that insurers spend 80% of premiums on medical expenses, ahead of required implementation of the standard next year.
"The miscalculation was unique to the individual business rate filing in California," said Ms. Binns, who pointed out that many states have conducted rate reviews in which the company's actuarial conclusions were upheld.
Insurers have warned that the new health law will do little to contain rapidly rising prices and say they will keep raising rates to cover costs. Ms. Sebelius's request is an indication that the administration is looking to state regulators to make sure a central promise of its health overhaul—reducing the burden of health-care costs on consumers—doesn't go unfulfilled.
Ms. Sebelius's letter urges states to tighten their review processes, noting that new health law makes available $250 million to states for that purpose. Some state officials have already started acting in the wake of WellPoint's admission last week.
Connecticut Attorney General Richard Blumenthal said he will ask his state's insurance regulator Wednesday to comb through a local WellPoint unit's request to raise individuals' rates by 24% on average last year. Connecticut's insurance department had granted increases of up to 20%, said a spokeswoman for Mr. Blumenthal.
"If there were any similar errors the rates should be reduced," said Mr. Blumenthal, a Democrat who is running for a U.S. Senate seat in Connecticut.
In New York, where a WellPoint unit raised individuals' premiums by about 17% last year, actuaries are pulling out the company's filings and discussing the merits of the increases, said John Powell, assistant deputy superintendent for health at the state's insurance department. "We're going to see if any alarms go off for us," said Mr. Powell.
WellPoint said both New York and Connecticut have rate oversight processes in place to double-check the actuarial assumptions in companies' filings.
The issue extends beyond WellPoint, which is hardly the only insurer to request big rate increases and push California health insurance quotes.
"We're considering additional action on other companies' rate increases as well," Mr. Blumenthal said.
In Iowa, the insurance division recently asked an outside actuary to review the roughly 18% price increases proposed by Wellmark Blue Cross & Blue Shield, a local insurer. The review found no errors and the rates went into effect May 1, but the insurance division is now asking for independent reviews of all new rate filings.
Mr. Poizner in California said he plans to send the findings of the independent actuary to insurance commissioners in other states this week.
The National Association of Insurance Commissioners also expects its members to take a second look at filings of all insurers in the wake of WellPoint's errors in California, including an impact on New York health insurance quotes.
"We're being super cautious to make sure every increase is justified," said Sandy Praeger, the Kansas insurance commissioner and head of NAIC's health-insurance and managed-care committee.
Whether or not the companies can succeed in raising prices is critical on Wall Street. In an earnings report last week, WellPoint told analysts that it lost money on the individual business in California in March.
