Congressional hearings reveal WellPoint’s true intentions
This section from memo prepared by the House Committee on Energy and Commerce Majority Staff to the subcommittee holding yesterday’s hearings on the 39% premium increases scheduled for California-
According to Ms. Braly’s (CEO of WellPoint) testimony, “Another dynamic in our current challenging economy is that a higher proportion of healthy individuals move to lower cost coverage, such as coverage with a higher deductible, than in more robust economic times.”
Internal documents suggest that WellPoint’s business plan includes moving consumers into less generous plans. This strategy appears to have three components. First, WellPoint’s highest rate increases seem to apply to their most comprehensive insurance plans. Maternity care is a marker for a more comprehensive package of benefits. A chart of proposed rates shows that WellPoint’s highest rate increases apply to the only two product families regulated by the Department of Insurance with maternity coverage.The chart also shows that for the most part, WellPoint proposed lower increases within specific product lines for the versions with higher deductibles than for the versions with lower deductibles.
Second, WellPoint is developing new products, called “downgrade options,” to promote to consumers facing the high rate increases. In one e-mail, David Shea, the Vice President for Individual Pricing, states: “Jim has asked Bryan to price 5-6 downgrade options to be made available in conjunction with the upcoming rate action.” In another internal e-mail, Mr. Curley, the Regional Vice President and Actuary, proposed that WellPoint “create 5-6 CA look- alike plans for CA with a benefit or two removed to create a downgrade option upon renewal.”
WellPoint also introduced a completely new product line called CoreGuard, advertised to have “some of our lowest monthly rates” and a “higher percentage of member cost-sharing in exchange for lower premiums.” One of the CoreGuard plans has a $20,000 deductible for a family for in-network services and a separate $20,000 deductible for non-network services. On top of that, a family can spend an additional $15,000 for co-payments for non-network services. Enrollees can be liable for another $4,500 in prescription drug costs. This adds up to a potential $59,500 out-of-pocket maximum for a family, who are still liable for the cost of drugs not on the formulary and maternity services.
Third, company officials discussed scaling back benefits for existing plans. In an e-mail, Mr. Shea states: “During our Plan review this morning Brian was mentioning that, in CA in the past, we mitigated rate increases by introducing product changes for existing members. We brought up the introduction of new products but he wanted to pursue existing product changes.” In another e-mail, Mr. Curley described scenarios that would produce a 6% to 10% reduction in benefits for four plans. The options included raising deductibles in three of the four plans and adding 25% coinsurance payments.
Via Committee on Energy and Commerce
Therein lies the crux of the issue.
Yes, we can be deeply offended that – according to committee chairman Henry Waxman (D-CA) – 39 WellPoint executives are earning more than $1 million a year while the company apparently blew $27 million in fancy retreat experiences. It hurts to see these people living it up while their customers are being crushed under the heavy burden that is being placed on them for the privilege of having health care insurance.
However, as some simple math reveals, this is just not the core issue. While it might make us angry, putting all our focus on this will not fix the grave problems we face.
No doubt, some of the 39 executives at WellPoint making more than a million a year actually make well more than a million a year. So let’s say the offensive executive compensation plans add up to $100 million a year. Add to that the $27 million blown on good times at the company retreats and, for good measure, let’s kick in a bit more to round it out at $150 million.
The 39% premium increases in California alone affect approximately 800,000 people. If WellPoint were to take the $150 million and rebate every penny of it to each of its affected policyholders in California, it would save each of these individuals $188 a year or about $16 a month.
I’m not suggesting that that $188 wouldn’t be better spent in the pockets of WellPoint’s customers. What I am saying is that with California’s individual policyholders making monthly premium payments heading into – and in many cases exceeding – the four digits, this is not about saving sixteen bucks a month.
What this is about is WellPoint doing everything in their power to push customers out of policies that aren’t paying off for the company and into benefit programs that produce very little in the way of actual benefits.
As the house committee did, let’s take a look WellPoint’s new product line entitled “CoreGuard”. The program provides huge deductibles up to and exceeding $20,000 a year with additional annual co-payments up to $15,000. Drug co-pays can reach of $4500 a year. Of course the premiums are going to be dramatically lower – but why would the average American family ever buy such a program? They’re going to be bankrupt long before they hit the deductible.
Rep. Waxman put his finger right on the problem in yesterday’s hearing. Referring to the documentation WellPoint provided the committee, Waxman said –
They tell a story not about costs, but about profits … not about increasing coverage, but about reducing benefits to policyholders … not about removing barriers to coverage, but about erecting new ones … not about covering more people who have illnesses, but about cutting them off and seeking out new customers who are healthier and wealthier (emphasis added.)
Via House Energy & Commerce Committee
And there it is. The health insurers already know that the numbers no longer add up for them when it comes to providing insurance to middle class America. They know very well that their future lies in providing products to the wealthiest in America who will not be satisfied with the inevitable government payer system that will be provided to the average American – or whatever alternate system we might come up with to replace private health insurance as the primary payer in our national health care system.
The question that remains is how long will it take the rest of us to catch up with what the health insurance companies already know? If the private insurance model is to eventually exist to service the wealthy – and it will -what is going to happen to everyone else?
I think we know. In the absence of any planning to create any new approaches to the problem, the sole remaining option will be a single-payer government system. That’s an inescapable fact and its time for those emotionally stuck in the era of the ‘Red Menace’ to start dealing with it.
Would it not be wise to get over the ideological debates and begin planning for this inevitable eventuality? Or would we prefer to find ourselves caught flat-footed when the current system collapses leaving most of us in a real pickle until government can gear up to take it over or create some alternative system is created to handle medical coverage for Americans?
The insurance industry is speaking to us and they are coming through loud and clear. They can no longer make money insuring the middle class and that becomes truer with each passing day.
Too many of us are not listening.
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I keep linking to these on Facebook, trying to raise awareness among my many rabidly conservative family members.
cool. keep it up!
In response to another comment. See in context »I agree that the private insurance industry is not viable in its current form. I disagree, however, that premium increases are an industry ploy to price themselves out of the market. I agree that individual companies may use this as a tactic to kill certain insurance products that are not viable for them anymore. I think this is the case in the example given.
Given the current structure of the whole health care payment system we use, it may not be viable for insurance companies to provide health insurance for the middle class as you state. Your piece lacks an explanation for this that examines the cause of the problem, beyond your conspiracy theory that the industry just wants out.
Significant structural REFORM of what we currently have is needed. In my opinion, this primarily needs to be a correction of health care prices(not costs) brought about by significant and realistic corrections in what is paid to providers and facilities by government payors. This is simply accomplished by changing to a system where facilities and providers bid on contracts to provide the care teh government promises to their “members” (Medicare and Medicaid patients, etc.). The government needs to get into a free market mode to allow free market forces to work in health care. We do not have this now. We do not have a failed free market health care system, because it is NOT a free market now. Prices are set and fixed by Medicare. Many insurance companies use the same price structures.
In prior posts you state why you think free market forces won’t work. It is hard to know this when our current system is not at all a free market system.
The insurance industry is partially to blame for their own pending demise. They have turned what is a relatively simple process into a huge game of “let’s see how little we can pay, how long we can delay and how confusing we can make it.” This all causes unnecessary waste. I advocate for inviting anyone who wants to be in the business to the table to work our ONE set of simple rules for coverage, billing and payment (regulation). No more “lost claims”. No more “prior authorization”. No more paper forms that have to be mailed in. It’s 2010!
Last year I spent 6 months recovering proper payment for a claim that was “authorized”. In the fine print on the “prior authorization” letter was a statement that: “Authorization does not guarantee payment, it only gives you the right to file a claim”. I thought I BOUGHT the right to file a claim when I PAID for the insurance. One agent of the HMO told me that she “was not set up to receive e-mail”. WOW! Regulate out the cat-and-mouse confusion that is only designed to confuse people out of getting their medical bills paid.
Can anyone out there understand those “Explanation of Benefits” forms that the government forces your insurer to send you for every claim? Can you understand the bill? Do you get sticker shock when you see what was CHARGED? Wow, health care is TOO EXPENSIVE we conclude. Time to simplify all of this.
In addition, pooling everyone and charging them all the same premium is inherently unfair. People who choose unhealthy behaviors that they can CONTROL deserve to be charged additional premiums to cover what we know is their higher cost. (I know you advocate “rewarding the healthy” with lower premiums, but it is the same thing. Go buy some life insurance. You smoke? Higher premiums. You sky dive? No insurance for you. Unfair?
Don’t hate the playa’, hate the game.
gitchigummi
In response to another comment. See in context »Can you point to any country or time where free market forces have provided adequate medical services to all deserving citizens? This is a sincere request, if such a place exists or has existed, America could learn from it.
I can’t think of any.
You are missing my point. I am not stating unequivocally that a free market will work well (although I am optimistic it would). My point it that it is unreasonable to condemn our current situation as a failed free market, as so many have done, because it is not a free market. It has not been a free market for at least as long as Medicare and other social entitlement programs have been fixing prices (mid 1960’s). No one can reasonably dispute that payments are limited and set by these entities in a way that has nothing to do with what it currently costs to provide care.
So I advocate for putting contracts out for bid for the care Medicare (and other social programs) buys for its members. This is how the government does most of its business. The cost of Medicare would be corrected in a way that providing the care would no longer cause losses to providers and facilities. Medicare taxes would have to go up. The providers and facilities could then stop passing on these losses to the privately insured (essentially a hidden Medicare tax) and premiums would correct downward etc…
In summary, one can not rationally state that our current system is a failed free market, because it is not a free market at all.
In response to another comment. See in context »Fair enough, but if you can’t come up with a counter-example, it may be that our current system is as close to a free-market system as exists, and it doesn’t work. Just as there’s no good free market for selling water buckets to a fire brigade, there’s no good free market for selling health care to sick people. Like the Missouri traveller, when you’re healthy, you can’t afford to buy it, and when you’re sick, you can’t afford not to.
In response to another comment. See in context »Since everyone else (developed countries) has universal health, the end of democracy is not going to happen if we do too. Everyone is on Medicaid now at 65, and how a society treats the ill is a benchmark of how advanced they are… watched Star Trek last night
Very nice work, sir — blindly wishing-it-was-so (which is about as much deference as I can grant to Republican healthcare “plans”) is an incontestably disastrous way to ensure that at least the vast majority of Americans can receive healthcare — I’ll be passing it along.
More (and much better) Democrats!
wow. excellent work. makes these watered down measures they’re currently proposing seem like another dog and pony show. single payer always made the most sense. and while it’s important not to solely focus on the outrage of some companies’ excesses, those outrages are still all the more reason those companies should be obsolete.
I am not sure of the numbers that you put up, Rick. Where did the 800k subscribers number come from? I guess the reason I ask this is as follows: It costs us 2.3 trillion dollars to cover 300 million Americans. Yes, I understand that 45 million are not insured, but they are entitled to receive emergent care. This includes EVERYTHING, nutritionists, physical therapists, nursing, doctors, hospitals, insurance companies and pharma companies. That means the cost is 7,666/per person per year. Currently. You mean to tell me that WellPoint is barely making a profit and that 150 million they play with is modestly important? C’mon. I’m not going to argue the numbers, because I’m not sure how many subscribers WellsPoint has. But the cost savings from paperwork to health care is close to 5-7%. Armies of billers, collection agencies, the cost of PAPER itself (environmental), delays in care that it in turn creates, etc would generate savings that would genuinely enable people to receive care. I’m not sure what your perspective is, but the for profit model of insurance companies who in some instances are accountable to their own investors is not a drop in the bucket as you are making it sound.
Omar-
1. the 800,000 is the number of customers in California who have Anthem Blue Cross’ (WellPoint) individual policies. The number shows up in every single article written about this so there is nothing controversial. If you want assurance, you can simply google “BLue Cross 39% rate increase” and you will find any number of citations on this.
2. You completely misunderstand the law on what ER’s must do. They must provide primary care to all who come. Period. Where you get this idea that they do all the things you say, I cannot possibly imagine. If you learn you have cancer during your visit to the ER- do you think that your chemotherapy treatments are going to be done in an ER and there is osme obligation of the hospital to pay for it?
Your questioning facts that are obvious and availble to everyone with ease. Your making statements that are just plain wrong.
Beyond that, your comment kind of goes all over the place so I’m not sure what you are even getting at. How does the cost of paper come into this?
In response to another comment. See in context »Rick, thanks for responding. I appreciate the insight you provide…the rambling came at the tail end of 16 hours of work, so that is the lack of coherence. I’ll work a bit backwards and explain what I was getting at and why.
Tell the truth, I read more of your T/S page and learned more about your position. When I first responded, I hadn’t really understood the position you had taken. It struck me as “giving a pass” to the whole issue of “for profit” insurance industry.
I realized your intentions a little later and I’m never one to reject disagreement, especially borne of my ignorance. I certainly would not like to be willfully ignorant.
For the treatment of patients in the ER, my example was not to address a patient who was newly diagnosed with cancer. I understand their legal responsibility is to treat and stabilize patients. The determination of “stability” (which is ironic because a patient can be stably unstable) is determined by the physician. The example I was referencing was something I learned about from a colleague of a person who attempted suicide, but the result was a devastating injury that took many months to “stabilize”. The ultimate hospital bill cost 10 million dollars since he was on extensive and expensive life saving medications. He was uninsured. I am curious, in this context, would that patient have been able to be “dumped” as the expression goes? I’m asking your legal opinion on this issue. In my understanding, you would not be able to transfer this patient while his condition remained critical and required medications and was unsafe for travel. No?
The reason I was explaining this, is that, as I understood it(qualification), the total annual expenditure on health care is 2.25 trillion dollars, which includes literally everything including the expenses for private insurance, medicare, medicaid, etc. And, that would mean that the cost per person for health expenses is nearly $7,700 for literally every aspect of their care including insurance premiums. The insurance companies do not pay all of those expenses, nor do they come close. Therefore, with the coverage provided by insurance companies and the annual fees they collect and the types of patients who they do NOT cover, I would imagine that their profits would be far greater.
The next point to that effect, is that declared “profit” and what they really profited may be significantly different. There was an article in the NY Times how the Government Accountability Office was doing a study on corporations and taxes (link below). So, with tax evasion rampant, I think it would be reasonable to wonder if they, WellsPoint, were honest in their financial disclosures. Yes? That doesn’t mean I am right in this assumption, but I doubt it would be wildly outrageous to be skeptical.
http://dealbook.blogs.nytimes.com/2008/08/13/study-tallies-corporations-not-paying-income-tax/
So, those numbers could be larger than stated, even if they were modestly so. In the end, they could have elected for a more humble profit margin and still helped people. That was my point.
NOW, I realize later you weren’t arguing this at all. Your argument was that the cost-effectiveness of individual private insurance was just no longer their. As I explained, I was exhausted (mea culpa) when I read the article and misunderstood the thrust of it. I was astonished that they had as many private insurance policies as they did. I thought most customers for them would be negotiated for employees by their employers as group plans.
The little blurb about paper was that the needless complications of billing inherently translate to additional expenses for everyone. Hospital and Insurer which are then passed on to the consumers. So, insurers’ viability and longevity could be improved by addressing this (best at a national level).
I do have one contention with what you were discussing about middle aged, healthy people dropping their own coverage as part of the dynamic that added financial stress on their business. How have or can we quantify its impact in this case? There are somethings that are difficult to calculate or provide metrics on, I realize.
Now, just a tangent, people ARE getting sicker. The issues of obesity and diabetes (interlinked) have significantly burdened the health care costs comprehensively. The more I view the issue, the more complex the challenges people face. So, I completely understand the concept of shared risk by pooling, but maybe it isn’t just an aging population that is disrupting the risk pool. Maybe too many of us are literally just sick.
Finally, I apologize for misunderstanding your premise and I actually wound up staying up to read a lot more of your articles instead of getting rest. Many thanks for taking the time. Its probably the single greatest charity a person can undertake by educating others about issues that really impact our nation.
In response to another comment. See in context »No worries, Omar. I’m just pleased to hear you came here to read the post after a long day of work!
1. As for your friend’s case, that’s an interesting one to be sure!
No hospital would be legally permitted to ‘dump’ him. Of course, you read in the paper about the dumping that goes on. However, I doubt that even the most callous hospital would put your friend, in the condition he was in, on the street.
2. As to the insurance company profits, there is no question that their overhead costs are ridiculous. They run about 30% of every dollar. These could – and should- be brought under control which they could do if they would standardize their claims procedures. As I think you now understand, my point is even if they did this, the private insurance business model has likely run its course and is breaking down -and we aren’t ready for it.
3. As for the middle aged healthy people dropping coverage, I am relying on the statements of the insurance companies here. While I take your point that this may not be a great measurement, it does stand to reason that this would be the case in so difficult an economy, no?
4. I completely agree with you that people are getting sicker. And, yes, it is a serious problem and challenge to our system of payments. This is why I am supportive of things like the sugar tax. If someone is going to drink all that soda and become a type II diabetic, and you and I are going to have to pay for it with our tax dollars, it does not seem unreasonable to tax them on that soda so their money helps pay for their illness, too.
In response to another comment. See in context »[...] Congressional hearings reveal WellPoint’s trυе intentions – Rick Ungar – T… [...]