The insurance companies have been taking an incredible amount of heat lately for their stunning rate increases. Anthem kicked things off with their 39% increases in California, but these were not isolated hikes. WellPoint, Anthem's parent company, is increasing rates by double digits in at least 11 states. And other big insurance companies are hiking rates in at least half a dozen more states.
Insurance company CEOs have been called to testify before Congress, with more hearings to come. This has put the industry on the defensive and they've taken to the media to deflect criticism and explain their rate hikes. Their spin centers on one talking point, elucidated by Angela Braly, CEO of WellPoint, in today's Wall Street Journal:
WellPoint Inc. Chief Executive Angela Braly is facing her biggest test yet as the nation's largest health insurer comes under fire for its plans to raise rates as much as 39% in California.
So far, Ms. Braly has chosen to fight back. Instead of issuing a Toyota-style apology, she is turning her critics' argument around, citing rising health-care costs driven by doctors and hospitals, which she says aren't addressed by current health-overhaul bills.
The strategy, on display last week during a contentious House hearing focused on the rate increase, could get another airing Wednesday, when Ms. Braly and other top health-insurance executives are expected to appear before the Obama administration's top health official to discuss health-care premiums.
The idea that insurance rate hikes are driven by increases in the underlying cost of medical care has also been pushed by AHIP, the insurance industry's top lobbying front group.
Given the health insurance industry's duplicity on everything having to do with the health care system and their role in it, it shouldn't surprise anyone to find out that this talking point is a straight up lie.
A new report from Health Care for America Now sets the facts straight [pdf]. As Richard Kirsch, National Campaign Director, explained to reporters on a call today:
From 2000 to 2008, insurance premiums went up 97% for families and 90% for individuals. In the same time period, payments to providers like hospitals and doctors only went up 72%. Even worse, underlying medical inflation, calculated from the Consumer Price Index, went up only 39%.
In short, over the last eight years premiums almost doubled, but medical inflation went up only 40%. Premiums rose two times faster, and over three times faster than wages, which only rose 29% in the same time period.
The graph below shows the percentage increases in various health and economic indicators, including health insurance rates for families and individuals, the amount the insurance companies spend on care, doctors, and hospitals, and underlying medical inflation. As you can clearly see, the rate at which insurance companies increased their prices outstrips the amount they pay in benefits:
So while it's true the cost of medical care is rising faster than inflation, and it's also true doctors and hospitals are making more profit than they used to (the difference between medical inflation and what insurance companies pay to doctors), insurance companies are raising their rates much faster than even that - over 20% faster than the amount they are paying doctors and two times the amount the underlying cost of care is rising.
To put it another way, insurance companies are making more profit than ever (and they are making record profits) because they are raising their prices faster than their costs.
Which means they have more money to spend on perks. For example, Anthem spent $27 million on 103 executive retreats to places like Hawaii in 2007 and 2008 alone. In fact according to the report, from 2000 to 2008 insurance companies spent $716.4 billion of premium dollars on administrative costs, CEO salaries, and investor profit, almost enough to pay for the entire health reform bill.
Why are insurance companies raising their prices so much faster than the underlying cost of care? As Wendell Potter explained today on the call, it's to please Wall Street:
Insurance companies are accountable first and foremost to their shareholders and they will do whatever they can to meet their expectations and the expectations of a few powerful financial analysts.
Angela Braley [WellPoint's CEO] is not alone in making promises to Wall Street [when she told investors WellPoint wouldn't "sacrifice profitability for membership]. On their conference calls with investors, all the executives of other companies make the same promise - profitable growth. That's what investors want to hear.
The bottom line is that these companies are constantly raising their rates and dropping the customers they don't want in a process called "purging." The consequence is small businesses can't afford to pay exhorbitant rates and group coverage is dropped. When people are purged, they then have to seek insurance on the individual market. Many of these people have medical conditions so they can't get coverage at any price because insurance companies won't sell it to them. Those that can buy find insurance discover it's more expensive on the individual market and they get hit with shocking rate increases every year.
These rate increases are all part of the insurance industry's plan to squeeze more profit out of your premium dollars.
Rates go up for small business. (Blue Shield, for example, is raising its rates by over 75% in some cases.) Small business drops coverage. And then people have to seek insurance on the individual market where insurance make more profit because they can deny coverage or raise their rates with impunity because individuals have a harder time fighting back.
This is why it's so important to get health reform done and get it done right.
The individual market needs standards and regulations and small business needs protection, that's what the Exchange is for.
It would set minimum benefit standards so insurance companies can't sell junk insurance. It would have to approve rate increases, especially if President Obama's proposal for a rate overseer is included. And, with the inclusion of a public option, it would set up a system where insurers would have to compete for customers in a real way, instead of competing to steal each other's healthy and profitable customers as they do now, like "thugs and thieves" as Wendell Potter put it. And the government would be able to step in a provide subsidies so everyone could afford insurance.
The underlying cost of medical care is not driving insurance rate hikes. Greed is the singular driving factor at work. And our health care system must be reformed to fix this glaring, deadly problem.
The insurance companies have fired back, taking issue with the data used to determine the rate at which health insurance rates have climbed. To determine these rate increases, the report used data from the Kaiser Family Foundation, the gold standard for this type of information going back many years. It goes without saying that we stand by the data and the report's conclusion.