Advocacy for Patients with Chronic Illness, Inc. provides free information, advice and advocacy services to patients with chronic illnesses nationwide in areas including health insurance. We represent hundreds of patients in insurance appeals each year, and work with hundreds of others to try to help them find affordable health care coverage. We appear here on behalf of the thousands of chronically ill citizens of the State of Connecticut who are enrolled in Anthem Blue Cross Blue Shield’s (“Anthem”) grandfathered direct pay plans.
Anthem has based its requested 19.9 percent rate increase on two factors: Health care cost and utilization, and underwriting wear-off. Although we are not actuaries, Anthem’s rate filing raises several serious questions that must be answered before the Connecticut Insurance Department (“CID”) decides whether to approve the requested rate increase.
First, Anthem’s statements regarding health care utilization directly contradict widely-quoted statements by Anthem’s parent corporation, WellPoint, Inc. Anthem states that “[h]ealth care costs and utilization are the two main drivers of increasing health insurance premiums.” Anthem’s actuarial analysis reveals that claims cost is growing at a rate of 12.5 percent.
However, WellPoint reported better than expected earnings in the third quarter of 2010 because health care utilization has decreased significantly. Wayne DeVeydt, chief financial officer of WellPoint, states that utilization has fallen as compared with last year for several reasons, including the expiration of COBRA benefits and lower flu-related expenses this year. Murphy, “Drop in care use boosts health insurer 3Q earnings,” Washington Post (Nov. 3, 2010). See also Helfand, “WellPoint and Aetna post higher profit in 3rd quarter,” Los Angeles Times (Nov. 4, 2010). “’People just aren’t using health-care like they have,’ said Wayne DeVeydt, WellPoint’s chief financial officer, in an interview Wednesday. ‘Utilization is lower than we expected. . . .’” Johnson, et al., “Americans Cut Back on Visits to Doctor,” Wall St. Journal (July 29, 2010).
Thus, Anthem’s basis for the majority of the requested rate increase is directly contradicted by WellPoint. Anthem should be required to explain this obvious discrepancy.
Similarly, in light of these trends, one must question whether Anthem’s claim that underwriting wear-off results in claim costs that are 30 percent higher in year two than in year one. In light of the sluggish economy, it is well accepted – including by WellPoint – that consumers are forgoing elective procedures, and that this may not be a temporary trend. “’[T]his could go beyond the recession. Being a less aggressive consumer of health care is here to stay,’” says Paul Ginsberg, a health economist who runs the Center for Studying Health System Change. Johnson, supra. In addition, Anthem’s Lumenos plan is a high deductible plan, which forces consumers to bear more of the cost of health care, which also contributes to lower utilization. Id. In the second quarter of 2010, “WellPoint reported a 4% earnings bump, saying that hospital admissions and usage of prescription drugs had dropped compared with a year earlier.” Id. Thus, this trend has generated profit for WellPoint for at least two quarters in a row this year alone. We question the claim that this universal downward trend in utilization reverses itself once a consumer enters the second year of coverage under a policy.
Thus, the two assumptions upon which Anthem bases its rate request are questionable at best, even according to Anthem’s parent corporation. However, the problems with Anthem’s rate submission do not stop there.
There is considerable relevant information missing from this rate filing. In April 2010, the United States Department of Health and Human Services issued a request for comments regarding Section 2794 of the Public Health Service Act, which is the federal health reform provision regarding premium rate review processes. 75 Fed. Reg. 19335 (April 14, 2010). Many comments were submitted; among them were comments from WellPoint, signed by Elizabeth P. Hall, Vice President of Public Policy at WellPoint. Those comments suggest that States require an actuarial memorandum including all of the items included in the Anthem filing PLUS two additional items:
· A brief description of the type of policy, benefits, renewability, general marketing method and issue age limits; and
· An outline of recent prior rate increases and the effective date of the increases on each policy form.
Although WellPoint suggests that these items be included in rate filings, inexplicably, neither is included here. They are extremely important.
First, Anthem appears to take the position that all of the actuarial analysis that is provided pertains to all of its Direct Pay plans. However, intuitively, this does not make sense. For example, the Century Preferred Direct Pay plan can be purchased with or without a prescription drug benefit. The pharmacy utilization trend is a factor that is used to justify the rate increase. Clearly, it does not apply to a plan without a drug benefit. Similarly, Tonik is a very different type of policy than Century Preferred, and Lumenos is a high deductible plan that accompanies a health savings account, which, as noted above, is likely to produce very different incentives to utilization than the other plans. Indeed, the only thing all of these plans have in common is that they are individual policies. It is clear even from Anthem’s filing that the analysis of cost trends is very different between PPO and HMO plans. While we understand the preference for aggregated rate-setting, this approach requires that the nature of the plans be described so that the CID can ensure that the appropriate plans are being aggregated.
Second, since Anthem relies so much on underwriting wear-off, it seems quite relevant to know how many policies are in their second, third, fourth, etc. policy years. This information is not provided.
Third, the history of rate increases on these plans is very important. It matters whether last year’s increases also were in the double-digits, for example. If high increases are requested year after year, rendering these products increasingly less affordable, this trend is important not only to consumers, but to CID, which should, among its obligations, ensure that affordable individual plans remain available to consumers. The CID should require at least a three-year rate history to be included in any rate filings.
WellPoint also recommends that rates be filed 140 days prior to their effective date. This does not appear to have been done here, though. Further, WellPoint suggests that the actuarial review take into account the “impact of the mix of population covered based on demographics (e.g., age, gender, contract type, duration of policy, area and health status)”; and the “impact of benefit mix (e.g., percentage of members at each deductible level and product type).” Again, if these were taken into account, they are not shown in Anthem’s filing.
Other valuable information is excluded from Anthem’s rate filing. For example, it would be helpful to know the amount of Anthem’s surplus and reserves related to these plans. Although Anthem indicates the average monthly premium, it does not report how rates differ among the various plans, or even whether the requested rate increase would apply to all plans or only some, at the same or varying degrees. Indeed, we do not even know what costs Anthem includes in the medical loss ratios reported in the rate filing.
Perhaps most significantly, there is no indication whether Anthem intends to change the benefit packages under these plans. Despite the fact that these plans are grandfathered, the grandfathering rules do not preclude any and all changes in benefits packages. 45 C.F.R. § 147.140. Will the rate increases allow Anthem to maintain current benefit levels, or will Anthem reduce benefits while increasing rates?
Above all else, rate filings should be striving for maximum transparency to allow for meaningful public participation. As we move into the post-reform era of rate review, the CID should require all insurers to provide affected insureds with notice of the rate filing and the date and time of the hearing, and ensure that their rate filings are sufficiently informative and detailed so as to allow the public to understand them. Here, Anthem has provided less information than even its own parent corporation recommends, and nowhere near as much as the many consumer groups that filed comments in response to the HHS notice would prefer. Anthem should be required to revise the filing to provide all of the information that WellPoint agrees should be included in rate filings.
In sum, we have several substantive questions that should be answered before Anthem’s rate request can be ruled upon. Thus, we urge the Department to postpone a final decision on this rate request until all of these questions have been answered to the Department’s – and the public’s – satisfaction.
In my oral testimony, I stressed that, for Advocacy for Patients, this is not about Anthem vs. Aetna vs. United Healthcare. Our goal is transparency and public participation in the rate review process. We would support that goal regardless of which insurer's rates were at issue. Jennifer