Reporting from Sacramento — Executives from California health insurance giant Anthem Blue Cross, under fire for scheduled rate hikes of up to 39%, insisted Tuesday that their premiums were fair and legal, and they told lawmakers they expected that the increases would go forward.
Appearing before the state Assembly's health committee, the officials said that they believed rate increases for individual health insurance policies, delayed until May 1 while being reviewed by the Department of Insurance, would survive scrutiny by regulators
The testimony came as members of the committee lashed out at Anthem for its proposed rate hikes and its corporate profit a day before the rate controversy moves to Washington, where a congressional subcommittee holds a hearing Wednesday.
At issue are steep premium increases for many of Anthem's 800,000 California customers who buy policies for themselves because they do not have insurance through employers.
The increases, which had been scheduled to take effect March 1, were delayed while independent actuaries, hired by California's insurance commissioner, review whether they are justified under state law.
Since word of rate increases in late January, the hikes and the profit of Anthem's parent company, WellPoint Inc., have come under attack by customers, insurance brokers, consumer advocates, regulators, lawmakers and the Obama administration.
President Obama on Monday proposed an expansion of federal authority to regulate health insurance rate increases such as Anthem's as part of his national healthcare reform package.
In Sacramento, Anthem's president, Leslie Margolin, told the committee that much of the public frustration over the rate hikes was misdirected and should be aimed at the nation's healthcare system.
"This debate and this inquiry cannot and should not be just about the insurance industry or the delivery system or regulators or legislators or customers or brokers," Margolin said.
"We have wasted precious time and precious resources doing battle with each other," she added. "We must come together collaboratively and strategically to address the distressing symptoms of our troubled system -- rising premiums, for example -- and to address the fundamental underlying causes of our collective failure."
The health committee's chairman, Assemblyman Dave Jones (D-Sacramento), called the Anthem hikes "astonishing" as he renewed his call for the state to regulate health insurance rates the way it limits increases for auto and property insurance.
"Are you planning to go forward with the rate increases?" Jones asked executives from Anthem and Wellpoint during Tuesday's hearing in Sacramento.
James Oatman, WellPoint's vice president and general manager of individual business, responded: "We believe the rate increase we have applied for is consistent with all the laws of the state of California. We are advocating that those rates are appropriate rates."
The California Department of Insurance will allow Anthem's rate increases only if outside actuaries certify that the company spends at least 70% of its premiums on medical claims, as required by state law, a department spokesman said. That review should be finished by mid-April. Anthem officials have said they meet the standard.
If the spending falls below the 70% level, "we will exercise our full regulatory authority to force them to lower their rates," department spokesman Darrel Ng said. "Our rule is to ensure they follow state law. The company has been consistent with asserting that its rates are legal."
Oatman testified with Anthem President Margolin. Both defended Anthem's profit margin during an often-testy hearing, saying it was 2.5% to 5%, a figure they said put it in line with other insurers.
A Times analysis of Anthem's financial reports to regulators showed Anthem has transferred more than $4.2 billion in dividends to WellPoint since 2004. "How much profit is enough?" Jones asked the executives.
"We have no interest in profit beyond the range I have described to you," Margolin responded. "Profits in the range of 2.5% to 5% are reasonable profits. They are appropriate profits. They are profits that we have as . . . a responsibility to keep a viable business surviving."
Jones was unmoved by her testimony. "Have you no shame?" he said.
Anthem began notifying policyholders in January of the proposed rate hikes. The company told customers at the time that it might also depart from its typical practice of increasing premiums annually and instead do so more often.
Anthem is not the only insurer across the country to raise rates by double digits, but its increases have caused a national furor over insurance costs. Critics have roundly condemned the increases, saying they vastly exceed the rise of national healthcare spending.
Indianapolis-based WellPoint, which has taken the lead defending the rates, said that less than a quarter of those affected would see increases of 35% to 39%. The average will be about 25%, while some policyholders will see rates drop by as much as 20%, company executives said.
WellPoint has argued that the higher premiums reflect soaring medical costs and the changing pool of individual policyholders. Younger and healthier customers are forgoing insurance in the tough economy, leaving older and sicker people with greater health needs to share the cost of individual coverage, the company said.