President Obama’s latest push for a health care overhaul could drive health plans around the country into insolvency, according to an insurance trade group.
A plan released Monday by the White House would give the federal government the power to regulate health insurers like a public utility. The Health and Human Services Department — in conjunction with state authorities — would be able to deny substantial premium increases, limit them or demand rebates for consumers.
But the Blue Cross and Blue Shield Association warned against separating premium reviews from the responsibility of state regulators to make certain that health insurers have enough money to pay claims. A separation like that could lead to “multi-plan insolvencies,” the association said in a statement.
“The risks of such a proposal — namely undermining the security and stability of Americans’ health insurance — must not be ignored,” the statement said.
Health insurer WellPoint Inc. also warned about “significant solvency risks” from a federal rate approval system. The Indianapolis insurer said in a separate statement additional regulation also would do nothing to address “soaring medical costs,” which are the main reason behind rate increases.
Insurers have endured waves of criticism over big premium hikes in individual insurance markets since WellPoint’s Anthem Blue Cross said earlier this month it needed to raise rates in California by as much as 39 percent.
Large premium hikes or requests for them also have been reported in Maine, Oregon and Michigan, among other states. The Obama administration has pointed to these hikes — and billion-dollar profits the industry collected last year –as proof of the need for health care reform.
WellPoint said it lost millions last year on individual insurance in California. The insurer said a tough economy is forcing more healthy people to drop their individual insurance. That leaves a higher concentration of sick people who generate medical claims in their risk pools.
Insurers say these problems — not a push for profit — are the main reasons behind cost increases. Insurers and analysts say companies cannot subsidize their money-losing segments with premiums from other parts of their business.
Federal regulation of rate increases could hamper health insurers, said Edward Jones analyst Steve Shubitz. He noted that WellPoint already has said it lost millions and could be hurt if forced to lower premium increases.
“You can’t run a business losing money year after year,” he said.
But BMO Capital Markets analyst Dave Shove noted that a federal rate review would include an actuary who monitors insurer financial health. He doubts the proposed regulation would push any health plans into insolvency.
But he also said many details remain to be resolved, and a federal regulator might motivate insurers to stop selling individual policies in some markets.
“That is a a very real possibility,” he said. “You probably will reduce choice for consumers.”
Topics Carriers Legislation
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