WellPoint CFO Says California Previews Obama Premiums (Update2)
March 10, 2010, 4:19 PM EST(Adds closing share prices in fifth paragraph.)
By Alex Nussbaum
March 10 (Bloomberg) -- WellPoint Inc.’s plan to raise rates for some California customers by 39 percent, a rallying point for Democrats seeking a health-care overhaul, is a preview of the prices Americans will face if the proposal succeeds, the insurer’s chief financial officer said.
The health-care bill pushed by President Barack Obama will force healthy people out of the market while doing nothing to control medical costs, just the conditions that led Indianapolis- based WellPoint to raise rates in California, CFO Wayne DeVeydt said today at an investor conference.
Obama has spent the last month hammering WellPoint, the biggest U.S. health insurer, saying its proposed increase is “just a preview” of what will happen if Congress fails to overhaul the system. Borrowing the same language, DeVeydt said support for the legislation has sunk because Americans don’t believe the government can cover more people, raise taxes on the industry and still hold down premiums.
California “is a preview of what health-care reform is going to look like,” DeVeydt said at the Cowen & Co. conference in Boston. “These are the kinds of increases you’re going to see.”
WellPoint rose $1.05, or 1.7 percent, to $62.48 at 4 p.m. in New York Stock Exchange composite trading. The stock led gains among the six-member Standard & Poor’s 500 Managed Care Index, which increased 1 percent.
‘Short-Term Thinking’
After DeVeydt spoke in Boston, the Obama administration took its criticism to the industry’s doorstep, with the U.S. health and human services secretary telling the trade group America’s Health Insurance Plans that insurers were making money off people with no choice except to pay higher rates.
Kathleen Sebelius, the secretary, said Obama’s legislation will make insurance affordable and expand coverage.
If the overhaul fails, “you may still be able to make money off the customers who are afraid to leave or don’t have other insurance options, at least for the short run,” Sebelius said at the association’s Washington meeting. “This kind of short-term thinking won’t work in the long run for the American people or our health-care system.”
Insurers should take “the millions of dollars you have stored away for your next round of ads to kill meaningful reform” and instead give Americans relief from “skyrocketing premiums,” Sebelius said.
Obama Speaks
WellPoint’s proposal would affect about 800,000 Californians who buy insurance on their own. While some would see as much as a 39 percent increase, the average premium would go up about 25 percent, DeVeydt said. The company has postponed the higher rates until May 1 to let the state insurance department review the request.
The health-care bill before Congress would cover 31 million people without insurance, pay for subsidies by increasing taxes on health-care companies and force insurers to take customers regardless of health.
DeVeydt, at the Cowen conference, said the last provision will let people drop out of the insurance pool until they are ill and force WellPoint to raise rates on the remaining customers. While Obama’s plan requires all Americans to obtain insurance, the penalties for those who don’t are weak, he said.
Not Convincing
“You cannot convince me or any other average American that you’re going to insure 47 million more people, you’re going to expand the coverage they’re going to get, you’re going to put a multibillion-dollar new tax on the industry and costs are not going to go up,” he said. “The math doesn’t work.”
The Senate health-care bill passed last year would have little effect on premiums for the 159 million Americans expected to buy coverage through employers in 2016, the Congressional Budget Office said in a Nov. 30 analysis. Premiums would rise as much as 13 percent for 32 million people who buy on their own, though subsidies in the bill would lower costs for about two- thirds of that group, the agency projected.
Karen Ignagni, president of the industry trade group, said after the appearance by Sebelius that the White House and Congress were responsible for problems facing the legislation.
Many of the requests in her speech, including greater transparency on premium increases, are being met, Ignagni said.
The Senate legislation, which Obama has used as the base of his proposed bill, lacks tough enough requirements for Americans to sign up for insurance, Ignagni said. As a result, people won’t sign up for insurance until they are sick and insurance pools will generally only include the sickest and oldest patients. That will lead to higher premiums, Ignagni said.
“Our concerns are very simple,” she said. “We have been concerned that the current legislation will make the system more expensive.”
--With assistance from Nicole Gaouette in Washington. Editors: Bruce Rule, Jeffrey Tannenbaum
To contact the reporter on this story: Alex Nussbaum in New York anussbaum1@bloomberg.net.
To contact the editor responsible for this story: Reg Gale at Rgale5@bloomberg.net
