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Health Plans Have Wait-And-See Approach to Individual Market

Joe Cantlupe, for HealthLeaders Media, February 17, 2010

There's a buzz in healthcare plans that may be just beginning and the year is barely seven weeks old. Buzz, heck. It's going to get a lot noisier.

The controversy is inadvertently wrapped around HealthLeaders Media Industry Survey 2010 questions about investment in individual markets. It also centers on the still unfolding drama over insurer Anthem Blue Cross's proposed 39% rate hikes in California.

In the HealthLeaders Media survey, 36% of health plan leaders said they planned to invest in individual markets, as a way to deal with the erosion of employee-based health insurance. At the same time, however, more than 62% also said that their company was not investing more resources into the individual market—at this time. [See Questions 24 and 25 in the Health Plans survey.]

We can certainly see more reticence now in the wake of the Anthem Blue Cross debacle. The company's proposals affecting its individual markets have become caught in a maelstrom of bad publicity and churning politics. As Bob Stone, co-founder and executive vice president of Healthways, a Franklin, TN-based population health management company says: "The individual market is actuarially tricky and fraught with PR and political landmines."

Anthem Blue Cross and its parent, WellPoint, have just stepped on the landmine. Anthem Blue Cross's decision to seek a rate hike was greeted by two denunciations by HHS Secretary Kathleen Sebelius, and announcements of investigations in Congress and the California Assembly. The potentially lengthy congressional hearings are slated for next week.

Anthem Blue Cross's announcement was poorly timed because it occurred in the midst of a recession and a stalled healthcare reform debate. As the HealthLeaders Media survey shows, there has been much uncertainty among insurers whether to pursue the independent markets. With the Anthem controversy, the hesitation may continue, although the individual market is seen as one of the few areas of growth in health insurance.

"Given the political backlash with respect to the rate increase in California, it would not surprise me to see a cooling of plans' interest in aggressively pursuing this market," says Stone.

The individual market, as WellPoint execs pointed out, is the "market of last resort" for people who do not have access to employer market or government-subsidized public programs. Individual markets represent a means to sell plans to a larger population base. But there is narrow room for error, as Stone sees it.

"For that business to be successful, the relationship between premiums charged and coverage expense must be actuarially sound," Stone says. "Since coverage is by definition sold individually, the underwriting risk can be easily pooled and it is easy to understand how the premium/expense ratio can get out of whack, which, in turn, leads to the plan's raising premiums."

WellPoint brass said repeatedly that increased medical costs have led to the increased rate hike request. Brian A. Sass, president of Wellpoint's consumer business unit, tried to support WellPoint's arguments with the facts as he saw fit. While much of the media has focused on the possible 39% increase, Sass wrote in a letter to Sebelius, the rate exchanges range from a 20.4 % increase to a 34.9% increase.

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