Here is the response that Anthem sent to me in reaction to HHS secretary’s Sebelius’s letter.

Anthem Blue Cross Regarding Letter from Secretary of Health and Human Services

February 8, 2010

Anthem Blue Cross in California has received the letter from Secretary Sebelius. We will reply to her promptly. It is important to note that individual medical insurance premiums do not reflect an individual member’s personal claims experience. Therefore, as medical costs increase across our member population, premium increases to the entire membership pool result. Unfortunately, in the weak economy many people who do not have health conditions are foregoing buying insurance. This leaves fewer people, often with significantly greater medical needs, in the insured pool. We regret the impact this has on our members. It highlights, why we need sustainable health care reform to manage the steadily rising costs of hospitals, drugs and doctors . As such, it is important to go back to the beginning and get health care reform done right. At the same time, we are engaging with a broad range of key stakeholders across California to discuss the state’s individual insurance market and share ideas on how we can collectively partner on meaningful change.

Anthem Blue Cross

Rate Adjustments

We understand and strongly share our members‰Ûª concerns over the rising cost of health care services and the corresponding adverse impact on insurance premiums. Unfortunately, the individual market premiums are merely the symptoms of a larger underlying problem in California‰Ûªs individual market – rising health care costs. The increasing demand for medical services, the use of new prescription drugs, and demand for advanced technologies are driving up the cost of health care at an unprecedented rate. Anthem is investing in many initiatives to reduce the cost of care, promoting wellness and preventive care for our members and communities, as well as, working with providers to encourage high-quality, evidence-based care, which costs less over time. In addition, our health plans offer members significant discounts through access to a large network of health care providers across the country. These efforts, however, cannot completely offset all the increases linked to the cost of care. The pricing structure of our individual products is a reflection of the medical risks and costs associated with this market. As the cost of care increases, premiums rise accordingly.

Anthem regularly evaluates its rate structure to make sure that the cost of claims incurred is offset by the premiums collected, and that we anticipate the cost of future, expected claims. At times, based on the cost of covering benefits, rates may be either raised or lowered. To assist members who are looking to explore alternative plan options, Anthem offers a team of licensed Health Plan Advisors. These advisors are dedicated to assisting members in finding solutions to meet the balance between their coverage needs and their budget, especially in these challenging economic times.

Regarding how often an adjustment is made to a member‰Ûªs rates:

Anthem complies with all state regulations regarding rate increases and depending on the plan, we are required to provide members with a 30 day notice of any rate adjustment.

It is important to note that premiums are expensive because the underlying health care costs are expensive. Anthem offers a variety of health benefit plans, and we are dedicated to working with our members to find health coverage plans that are the most appropriate, and affordable for their needs. We are more than happy to take a look at a member‰Ûªs health benefit plan and review possible options to more closely meet the member‰Ûªs current needs. This may include moving to a lower priced plan.

We are determined to support quality care for our members, we share their concerns about the upward rise in premiums and must adjust our rates as needed to cover the costs and risks associated with providing quality health care for all of our individual members.

I believe that the truth is in the middle somewhere. But Anthem makes some good points and points that I have written about in the past.

First, the insured patient also is paying for the uninsured patient. Hospitals rely on higher payments from traditional insurers to offset what they say are inadequate payments from Medicaid and less than satisfactory payments from Medicare. They count on higher payments from insurers like Anthem to help offset lower payments and to pay for the increasing amount of uninsured patients walking through their emergency departments where they must treat them. People are delaying care because they have no insurance and are therefore sicker when they need it. That drives up costs. Then you add to the fact what Anthem states – that the healthcare experience (that is a term HR professionals use) for the insured population becomes the basis for premiums. With the healthy opting out of insurance and the sicker staying in, the claims experience (read healthcare costs) will be higher and that is spread among everyone. So I may be in great shape and take care of myself but my obese colleague who smokes and is on my health plan as well uses more resources that I pay for in the end.

I also want to call your attention to this line from their statement: The increasing demand for medical services, the use of new prescription drugs, and demand for advanced technologies are driving up the cost of health care at an unprecedented rate.

I totally agree with this. We have become a society that demands the best. Worse we have become a society that says hey why take care of myself when their will be a drug, a device or a cure for what ails me. So we as individuals are responsible for this as well.

I applaud all the wellness efforts too but frankly there is only a fraction of people taking advantage of them.

That is why reform is not addressing some very systemic issues raised here before.

But I would also suspect that the amount cited by HHS may not be the amount that Anthem actually experiences from all of these converging forces. After all there is a strong profit story that HHS spells out and insurers are in business to make a profit.

This is so much more complicated than is being put forth in health care reform. My fear is that watered-down legislation that does not address systemic issues is going to be railroaded through in the end.