Angela Braly, CEO of Wellpoint, defended individual rate increases at Anthem of California before Congress today , She said that increased premiums in the individual and small group market were caused by increases in the cost of health care and healthier subscribers dropping their insurance. When NPR ran the story, the highlight was that she recited her 2009 compensation. For the record, she stated that her compensation included $1.1million salary, $70,000 performance bonus, and stock options valued at over $8 million.
Robert Reich, former Labor Secretary, has an op-ed in the New York Times decrying the health industry entitled “Bust the Health Care Trusts.” He notes the concentration in the health insurance industry, where “90% of the insurance markets in 300 metropolitan areas are ‘highly concentrated.’” Reich reminds us that the five largest health insurers made profits of over $12 billion last year, and supports the repeal of the McCarren-Ferguson Act, which exempts insurers from federal antitrust scrutiny and makes them subject to state regulation. The House voted to scrap McCarren-Ferguson earlier today.
It’s hard to be favor of 39% rate increases – and there certainly are instances where health plans with little competition have enriched themselves at the expense of public good. But there is a lot of demagoguery going on here.
· The Wellpoint CEO’s salary and bonus are relatively small for a company of this size. The stock grant makes total compensation appear large – but the stock grant dilutes the value of shareholders –and is not paid out of ‘health care dollars.” Executive compensation is easy to despise, but this expense represents a tiny portion of all health care expenditures. The really costly issue is the “friction” in health insurance and provider payment.
· The problem of the healthy dropping out of health insurance is real and worrisome. This is called a ‘death spiral,’ where soaring costs make the healthier people drop out – causing sequential increases in premium expenses, fewer people insured, and higher illness burden of the insured population. Paul Krugman wrote about this on Friday.
· Between 80-90% of all health care premium goes to pay those who deliver health care. We often focus on the 10+% of administrative costs, since it’s easy to oppose administration and bureaucracy. But most health care inflation comes from the health care delivery system (and in the US
· We face both insurer consolidation AND provider consolidation. In an environment where health plans must have virtually all providers “in network,” many provider organizations have been able to get substantial contractual rate increases. A market needs only a few viable health plans to have competition on the insurance side, and there are only a few markets where there are not multiple competing health plans The real challenge is how to promote meaningful competition on the provider side.
The Anthem rate increases in California
