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

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.

Almost as a tip to any health leader interested in exploring the individual health insurance market, Sass said there is much "volatility" in those markets. That's because of a quick and high turnover of members. The result is "the overall risk of the members can increase quickly," Sass wrote, noting a high "churn" rate.

For insurance regulators, Anthem Blue Cross' position is unconscionable. But actually, on the basis of numbers, the company may be justified in seeking the rate hike.

"The rate increase is probably ‘defensible at least actuarially, based upon the actual experience," wrote Bob Laszewski, author of the blog "Health Care Policy and Marketplace Review."

But this isn't about numbers. When Anthem Blue Cross executives dribbled out a response to Sebelius, who slapped it down, the company later agreed with insurance officials in California to postpone the rate hikes from March 1 to May 1 until the investigations are finished.

Not once have I seen this much negative publicity end up with a government agency telling a business in the aftermath: OK, raise the rates. The first mistake that Anthem Blue Cross made was not immediately and dramatically acknowledging the recession, its 800,000 individual customers, the importance of its individual market plan, and make clear the reasons behind this proposed insurance hike in a clear, emphatic, empathetic manner. Instead, it paid PR ping-pong with Sebelius.

Anytime I see a big company make a major PR mistake, I think back to New Brunswick, NJ, where I worked as a young reporter in the 1980s. At that time, healthcare giant Johnson & Johnson performed one of the smoothest, upfront, and certainly difficult PR moves, after the giant pharmaceutical firm discovered Tylenol capsules were found contaminated. Instead of floundering for days wondering what to say or not to say, J & J worked immediately to let people know what went wrong, and what they were going to do about the damage done to their drug. Quickly and honestly. The Tylenol brand was left intact.

As for the individual healthcare market, health planners may wait to see what's ahead for Anthem Blue Cross before they decide to venture into the market, or even consider their own rate hikes. It's one big headache. Take a couple of Tylenols and let's talk in the morning.