Insurance & Technology is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

News

10:25 AM
Connect Directly
Facebook
Google+
Twitter
RSS
E-Mail
50%
50%

White House to Propose Federal Regulation of Health Insurance Rates

The White House's announcement comes in the wake of proposed rate hikes of up to 39 percent by WellPoint's Anthem Blue Cross subsidiary operating in the California market.

As Insurance & Technology sources suggested in a recent report, the defeat of a sweeping healthcare reform proposal may make even more likely the prospect of health insurance reform, or what passes for it in political circles.That outcome seems more likely with word from the White House that the president will seek greater regulatory power over insurance rates, as reported by the Washington Post:

The new proposal, which a White House official described Sunday night, would give [Health and Human Services Secretary Kathleen] Sebelius new authority to oversee, and potentially block, rate increases that are deemed unfair. It would be based, at least in part, on legislation initially proposed last week by Sen. Dianne Feinstein (D-Calif.).
The White House's announcement comes in the wake of proposed rate hikes of up to 39 percent by WellPoint's Anthem Blue Cross subsidiary operating in the California market.

The details of the proposal remain to be seen, but in broad terms it would seem to include an unprecedented federal role in regulating health insurance rates. Such a novel power is likely to face strong opposition, resulting in the negotiation of conditions and guarantees attached to any government authority, according to Kunal Pandya, senior analyst for health insurance, Aite Group.

This could mean that today's bold political gesture will result in nothing or something much milder than advertised. However, it shows how much more likely federal regulation of the insurance industry is today than in the recent past.

As for the mood of the public, and the willingness of politicians to exploit it, Feb. 18 Wall Street Journal editorial cited Senate Majority Leader Harry Reid criticizing "WellPoint and other 'greedy insurance companies that care more about profits than people.'" Not surprisingly, the WSJ views the government's attempt to enforce "fairness" with skepticism:

[Reid] ought to subpoena California's political class because Wellpoint's rate hikes are the direct result of the Golden State's insurance regulations-the kind that Democrats want to impose on all 50 states. Under federal Cobra rules, the unemployed are allowed to keep their job-related health benefits for 18 to 36 months. California then goes further and bars Anthem from dropping these customers even after they have exhausted Cobra. California also caps what Anthem can charge these post-Cobra customers.

Most other states direct these customers to high-risk pools that are partly subsidized, but California requires the individual market to absorb the customers and their costs. Even as California insurers have had to keep insuring these typically older and sicker patients, the recession has driven many younger, healthier policy holders to drop their insurance-leaving fewer customers to fund a more expensive insurance pool.

This explains why Anthem lost $58 million in California on its post-Cobra customers in 2009. If WellPoint didn't raise premiums amid these losses, it would soon be under assault from its shareholders, if not out of business.

Update: The White House has since unveiled the plan.The White House's announcement comes in the wake of proposed rate hikes of up to 39 percent by WellPoint's Anthem Blue Cross subsidiary operating in the California market.

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio

Register for Insurance & Technology Newsletters
Slideshows
Video