Media Discovers WellPoint's "Right To Profit" Case

News outlets are starting to report on Anthem Blue Cross and Blue Shield, a subsidiary of WellPoint, suing the state of Maine to guarantee a 3% profit for themselves. Here's a report from the Maine Public Broadcasting Network:

The state and Maine's largest private insurer Anthem Blue Cross Blue Shield are locked in a legal battle over how much profit Anthem should be able to make. Earlier this year, Maine's insurance superintendent Mila Kofman denied Anthem's request to raise rates for its individual insurance products, calling it "excessive," and instead approved an increase that leaves Anthem without a profit margin for providing those 12,000 policies. Now Anthem has filed suit to get the decision overturned.

"Superintendent has noted that Anthem's done pretty well." Janet Mills is the Maine Attorney General who is representing the superintendent of insurance. Mills' office counters that Anthem averaged a 3.2 percent profit margin in its individual line of products for the nine years that the company has been in Maine. And that going a year without a profit from those products will not drain the company.

"She found that in fact that had contributed to $17.5 million and that its executives were pocketing rather large salaries and bonuses." Anthem spokesman Chris Dugan did not comment on the lawsuit beyond acknowledging that it had been filed. In a brief filed with the Maine Superior Court, however, Anthem calls a 0 percent profit margin unfair and unprecedented; it says it wants to have a profit margin of at least 3 percent.

Remember, the new rates offered by the Maine Superintendent do not prevent Anthem from making a profit; they can do that the same way other companies might do so in a recession, by cutting overhead costs and lowering executive salaries and taking up more efficient management of their business. But as I've reported and as Igor Volsky confirms, Anthem wants the state of Maine to guarantee a 3% profit as a Constitutional right:

A 0% risk and profit charge, by definition, builds in no cushion for any of the risk that Anthem BCBS takes on by selling Individual Insurance Products in Maine. In addition, with a 0% risk and profit charge under the Superintendent’s approved rates, Anthem BCBS will not be able to provide any contribution to the surplus of the Company…Anthem BCBS — a for-profit Company — cannot be required to operate its highly risky Individual Insurance Products essentially as a non-profit company that must offset losses generated by the Individual Insurance Products through its group insurance business in Maine.

This is a fantasy argument from a legal perspective. The Superintendent works for the people, not Anthem BCBS, and she is not required to provide a profit margin for it or any company as an inalienable right. Anthem is a very profitable company already, and the individual market they want to jack up 18.5% represents a small portion of their business (about 6%) which has brought in $17 million dollars over the last decade. The Superintendent can say no, under the law, to allowing Anthem to charge an "additional $12 million in annual premiums for the same level of benefits.” She does not have to guarantee Anthem a profit. WellPoint may be able to cut their own employee health care, but under the regulations of Maine, they cannot squeeze their customers without the Superintendent stepping in to protect them.

The Wonk Room has provided copies of the briefs in the case here and here.

Econo-blogger Robert Waldmann has more. In addition, Ed Schultz ran a segment on the case on his show:

Visit msnbc.com for Breaking News, World News, and News about the Economy

It goes without saying that Maine is a linchpin of health care reform, given the position of their moderate Republican Senators. Maybe they should look into what's happening in their own state.

Subsidiary Of WellPoint Sues Maine To Raise Insurance Premiums 18.5%

A wild story out of Maine.

Anthem Health Plans of Maine, a subsidiary of WellPoint, is suing the state because they want to increase premium rates by 18.5% on their 12,000 individual insurance policy holders, so they can guarantee themselves a 3% profit margin. This story shows how silly it would be to solely rely on regulation to rein in insurance industry practices.

Like many other states, Anthem Health Plans hold a monopoly on the individual insurance market in Maine, controlling 79% of all the plans. Also like many other states, they are licensed to sell insurance through the Department of Insurance, who must clear all rate increases prior to implementation. Originally, Anthem Health Plans were a nonprofit Blue Cross and Blue Shield corporation licensed to practice in Maine since 1939. In 1999, Anthem bought the business and began to operate it as a for-profit company. Since that point, Anthem has raised premium rates 10 times, and 8 of those times have been double-digit rate increases.

Jan-99: 20.4%
Nov-99: 15.7%
Jan-01: 23.5%
Feb-02: 12.7%
Jan-03: 3.4%
Mar-05: 14.5%
Mar-06: 16.3%
Jan-07: 16.7%
Jul-07: 1.3%
Jan-08: 12.5%

The average individual Maine rate-payer is paying four times as much for insurance than they did ten years ago.

But this isn't good enough for Anthem Health Plans. They first proposed a 14.5% rate increase for its individual insurance products, then they revised it up to 18.1% and finally 18.5%. This is an average increase. Some plans would see increase of 24.5%, some 38.4%, and for its Preventive Care and Supplemental Care Accident rider, which is part of 1/3 of all their policies, Anthem proposed a rate increase of 58.2%. This amounts to Maine consumers paying $12 million more in annual premium dollars for the exact same level of benefits.

Anthem isn't hurting for profit. Their Maine operations have generated an average annual return of $70 million dollars over the last five years. Anthem paid dividends to their parent company, WellPoint, of $75 million dollars last year alone, and $152 million since 2006. Their nine highest-paid employees totaled over $4.3 million in compensation. The individual market, while a smaller portion of their overall business, still generated $5.4 million in profit over the last two years.

The reason Anthem desires these rate raises is because their actuarial charts show they can guarantee a 3% profit through this increase. That's an estimate, however, and in 8 of the last 10 years the profit margin achieved has actually been higher. The Maine Superintendent of Insurance ruled in May 2009 that the 3% profit and risk margin sought was "excessive and unfairly discriminatory," as per the laws of the state, and instead approved a rate increase of 10.9% for Anthem. Given the recession, the financial health of the company, and the years of large rate increases, there was no way she could approve anything higher.

So Anthem sued the state. But not after filing revised rates at a 10.9% increase so they could get that going while they litigated for an even higher rate.

The Superintendent of Insurance explained in a court filing that there is no statute mandating that Maine must provide Anthem or any other insurer with a guaranteed profit. Given Anthem's ability as a large operation to cut costs, just as any family must do during a recession, the Superintendent argued there is nothing preventing them from making a profit with a 10.9% rate of premium increase. But Maine is under no obligation to guarantee one. That would be a "socialized profit," which Anthem is asserting the right to without any legal basis in fact. Furthermore, policyholders have contributed $17.4 million in profit to Anthem's bottom line over the past decade, which should be more than enough to cover potential losses from just the individual insurance line this year.

Anthem argued that they were discriminated against relative to other companies in Maine because one other individual insurer was provided a 3% profit and risk margin (that company, MEGA, asked for 2.2% rate increase back in 2007, a far different scenario). This, the corporation said, violated their equal protection rights under the federal and state Constitutions. This is a laughable claim, that the state must guarantee a profit for every insurance company licensed to provide a product. It's nowhere to be found in the Maine Insurance Code, and the Superintendent of Insurance is allowed under Maine law to consider each company's situation individually. In this case, she ruled that a 18.5% increase in premiums would be unfair and excessive.

This is a very revealing case. Those arguing against a public option claim that insurance regulations alone will be sufficient to provide an affordable product for everyone. Here's a case where Maine is attempting to regulate the industry, and the industry sues the state in an effort to grab more profit. While claiming to be on the side of reform, they will fight tooth and nail, and can be expected to do so for every regulation in the national health care bill, right down the line.

Brave New Films has put together a video exposing the practices of Anthem and its parent company WellPoint. You can send your friends in Maine the news about this lawsuit, to highlight this practice. Maine Superior Court will consider this case on Wednesday.

From Maine Superior Court, Civil Action, Docket No. AP-09-29
Anthem Health Plans of Maine, Inc., d/b/a Anthem Blue Cross and Blue Shield v. Superintendent of Insurance, et al.

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...Arthur Delaney now has this story up at The Huffington Post. He notes that Anthem lied about their individual market performance:

In its filing, Anthem said it had lost $3.7 million on its individual insurance products over the past five years. The AG says Anthem has made $5.4 million from individual consumers over the past two years, and points out that Anthem paid $75.7 million in dividends to WellPoint in 2008, $40.4 million in 2007, and $35.6 million in 2006. And its executives paid themselves pretty well, too.

Annals Of The Insurance Industry

Just a few tidbits about the industry that Republicans and many conservative Democrats say we must keep in business at all costs:

• A member of a non-profit in Virginia was arrested at the headquarters of Anthem for trying to question them about a rate increase. This is the same Anthem who sent a letter to their customers telling them to contact members of Congress and tell them to oppose a public option. When the same customers try to contact Anthem, they are met with arrest.

• Crystal Lee Sutton, the union organizer who inspired the movie "Norma Rae," died from cancer this week, after a protracted battle with the disease - and her health insurer.

As Daily Kos blogger hissyspit points out, last year Sutton gave an interview to the press where she described a struggle with her health insurer over treatment. The Times-News in Burlington, North Carolina, wrote in 2008:

[Sutton] went two months without possible life-saving medications because her insurance wouldn’t cover it, another example of abusing the working poor, she said.

“How in the world can it take so long to find out (whether they would cover the medicine or not) when it could be a matter of life or death,” she said. “It is almost like, in a way, committing murder.”

She eventually received the medication, but the cancer is taking a toll on her strong will and solid frame.

• In eight states and the District of Columbia, insurance companies define domestic violence as a pre-existing condition. The theory goes that a victim of abuse is more likely to be abused again, and would require medical treatment for those beatings.

Words cannot describe the sheer inhumanity of this claim. It serves as yet further proof that our insurance system is broken, destroyed by the profit-mongering of the very companies whose sole purpose should be to provide Americans with access to care when they need it most. In 1994, an informal survey conducted by the Subcommittee on Crime and Criminal Justice of the United States Senate Judiciary Committee revealed that 8 of the 16 largest insurers in the country used domestic violence as a factor when deciding whether to extend coverage and how much to charge if coverage was extended.

• The same insurance interests who deny coverage to victims of domestic violence, who deny claims for cancer patients, who arrest those who dare to question them, have spent $585 million dollars in the past 2 1/2 years, and $700,000 a day, lobbying Congress to ensure that any reform bill protects their profits. They have scored with at least one committee, Max Baucus' Senate Finance Committee, which produced a bill that CIGNA whistleblower Wendell Potter calls an absolute gift to the insurance industry.

Potter argued that the lax employer requirements would shift the cost and risk of coverage onto the individual and maintained that the bill’s “network of cooperatives” would be unable to compete in today’s concentrated health insurance markets. “The co-ops won’t stand a chance,” he concluded.

Reform must also do more to regulate insurers, who have agreed to accept applicants with pre-existing conditions but are insisting on benefit and rate flexibility. Potter argued that the benefit package standards in the Exchange and the high deductible option for younger beneficiaries would allow insurers to design almost anything that they can sell in the health market place and push the country towards consumer driven health care.

Under the Baucus legislation, private insurers could also charge older individuals up to five times more for coverage. “You’re just using age as a proxy for health status,” Uwe Reinhardt, an economics professor at Princeton University told the New York Times. Reinhardt estimates that “Senator Baucus’s age-rating plan would allow insurers to cover roughly 70 percent of the additional risk they’d take on by being required to accept all comers, regardless of health.”

Some, like Nancy Pelosi, have vowed not to pass the "Insurance Industry Profit Protection And Enhancement Act," as she called it. But they are under tremendous pressure from powerful interests to enact just such a giveaway. Reform groups like Health Care for America Now understand that attacking this industry, and devaluing their influence, is a means to getting a bill that truly helps all Americans obtain quality and affordable health care.