Regulating Health Care, Part II

Anthem Blue Cross exposes the holes in rate regulation

The pols and the advocacy groups have told us for months that health reform is supposed to produce tighter regulation of insurance companies and better medical care. But corporate America has never taken kindly to any regulation that would lower profits. So when people die because insurers deny their claims or when patients die because of poor hospital care, regulators too often look the other way. That leads to the real question: Will health reform alter the business of regulation? In recent years, the media hasn’t been keen on scrutinizing the regulators and their cozy relationships with the regulated. Health reform gives them a chance to redeem themselves. This is the second post in an occasional series that will look at how news outlets are keeping tabs on the regulators and those they regulate. The entire series is archived here.

In the crop of stories the press delivered this week reporting on what they called a 39 percent rate increase for Anthem Blue Cross policyholders with individual policies, the piece by Victoria Colliver of the San Francisco Chronicle deserves a shout-out. Colliver’s story was a third-day react, but she nevertheless zoomed right to the crux of the increase. (Yesterday Anthem’s parent WellPoint said that rate changes ranged from a 20.4 percent decrease to a 34.9 percent increase, excluding age factors.)

In California, health insurers can charge customers whatever they want. The state has no rate regulation, and lawmakers in Sacramento have shown little interest in giving regulators the tools they need to do that. A bill giving that power to the Department of Insurance died in committee last year. Colliver quoted from a statement issued by California Sen. Dianne Feinstein, saying that Anthem’s behavior is a stark reminder of why health premiums should be regulated.

In about half the states, they are not, a point missing from several of the stories that appeared. This raises the question of how high rates can go in those places—and judging from California, the answer is “pretty high.” An Associated Press story reported that a spokesman for the California Department of Insurance said that rate hikes do not need state approval, although he noted that the department was hiring an actuary to see if Anthem was spending 70 percent of its premiums on medical care, as the state requires. The New York Times gave a nod to Feinstein’s statement calling for rate regulation in California, but did not delve into rate regulation elsewhere. The Washington Post asserted:

The health-care bills that have passed the House and Senate would completely overhaul the individual insurance market, which today carries high costs for many customers, with widely varying regulations from state to state.

What was that supposed to mean to readers? That federal law might improve things? How?

In a Marketplace commentary, former Labor Secretary Robert Reich said that he was going to drop his Anthem policy—“If I can. If that makes any difference.” How helpful is that for public understanding? Jonathan Cohn at The New Republic tried to equate the rate increase with the case for health reform, and then digressed into what he admitted was a “pretty wonky” discussion of risk pools, blocks of business in the individual market, death spirals, and speculation on what Anthem was up to.”

Much of the Anthem story centered on the predictable outrage from the politicians, with the media yet again taking their cues from the newsmakers. Obama used the rate hike to promote reform, insisting “If we don’t act, this is just a preview of coming attractions.” Health and Human Services Secretary Kathleen Sebelius delivered a widely publicized letter to Anthem, saying she was “very disturbed to learn through media accounts that Anthem Blue Cross plans to raise premiums for its California customers by as much as 39 percent.”

Sebelius was once the insurance commissioner of Kansas, a state that generally does not have to approve rates for health policies, and might have been interested in the tough scrutiny of Anthem from two states that do regulate premiums—Maine and Connecticut. High rate increases have also been plaguing small businesses in Massachusetts, a state that does not regulate rates for small groups but does for individual policies.

Last summer, Anthem, Connecticut’s largest health insurer, requested rate increases ranging from nearly 23 percent to 30 percent for several lines of business, including HMOs, consumer-driven health plans, and its Tonik policies aimed at young adults. The matter went to a hearing, where a hearing officer reduced the rate increases to between 16.6 percent and 20 percent. “I believe that Anthem was tone deaf to the realities facing their policyholders,” said insurance commissioner Thomas Sullivan. “Their timing was terrible, and the requested increase unjustified.”

In Maine last summer, Anthem sued insurance superintendent Mila Kofman when she reduced Anthem’s requested increase from 18.5 percent to 11 percent. The reduction apparently left the carrier without a profit margin, so it went to court contending that it needs at least a three percent margin for the individual market policies it has been selling. Next month the court will hear oral arguments.

So what is the public to make of all this? Yes, the latest Anthem news invites more scrutiny of the rates health insurers charge. But there’s a larger question for the media to ponder: Will even the strongest regulation tame the insurance industry? In our post on the Maine brouhaha, we noted that too often companies have sidestepped the rules, suing whenever they dislike something a regulator has done.

Take the practice of rescinding policies when carriers find that consumers have lied or misrepresented information on their applications. An investigation by the House Subcommittee on Oversight and Investigations showed that companies including WellPoint had canceled more than 20,000 policies and praised employees for targeting policyholders with costly illnesses. Yet insurance executives told Congress that they would not agree to limit rescissions to policyholders who intentionally lie or commit fraud on their applications. In other words, when the heat’s off, they admitted it will be business as usual. If reform moves forward, the media need to keep asking if Congress will allow other states to turn down big rate increases—or if they’ll let the industry write the laws, thus keeping regulators as powerless as they now are in California?

When we published the Maine post in October, we suggested that the Anthem lawsuit was the beginning of a big story. Now is the time to go for it.

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Trudy Lieberman is a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for The Second Opinion, CJR's healthcare desk, which is part of our United States Project on the coverage of politics and policy. She also blogs for Health News Review. Follow her on Twitter @Trudy_Lieberman.