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LOS ANGELES — The Obama administration on Monday asked California's largest for-profit health insurer to justify plans to hike customers' premiums by as much as 39 percent, a move that could affect some 800,000 customers.
In a letter to the president of Anthem Blue Cross, Health and Human Services Secretary Kathleen Sebelius said she was very disturbed to learn of the planned increases, calling them "extraordinary."
"I believe Anthem Blue Cross has a responsibility to provide a detailed justification for these rate increases to the public," Sebelius wrote. She said the company should also make public what percentage of customers' premiums go to medical care versus administrative costs.
In a statement, Anthem Blue Cross of California blamed the weak economy and rising health care costs for the rate hike, while pledging to reply to Sebelius' query promptly.
The rate hike "highlights why we need sustainable health care reform to manage the steadily rising costs of hospitals, drugs and doctors," the statement said.
Sebelius said Anthem Blue Cross' parent company, WellPoint Inc., "has seen its profits soar, earning $2.7 billion in the last quarter of 2009 alone."
Not counting roughly $2.2 billion it gained from the sale of a pharmacy benefit management subsidiary, WellPoint earned $536 million in the final three months of last year.
In a rare move, California Insurance Commissioner Steve Poizner is hiring an outside actuary to determine whether Anthem is abiding by state regulations and spending at least 70 percent of premium dollars on medical care as opposed to administrative costs.
Poizner's spokesman, Darrel Ng, said that's the only recourse because rate hikes do not need to be approved by the state.
President Barack Obama cited the Anthem rate hikes in an interview with CBS' Katie Couric on Sunday as a reason to move forward with his health overhaul legislation, which is stalled in Congress.
"That's a portrait of the future if we don't do something now," Obama said. "It's gonna keep on beatin' down families, small businesses, large businesses. It's gonna be a huge drain on the economy."
Health insurance analysts agreed that the rise in individual premiums will be echoed on a smaller scale in the rest of the health insurance market. Employer-based insurance and group policies are expecting 10 to 20 percent increases in the next year, said health industry consultant Robert Laszewski.
About 13 million Americans purchased health insurance through the individual market in 2008, the most recent data available. Surges in their premiums can be explained by competing interests: Insurance companies are working to maintain earnings expectations in the face of rising costs, while rising premiums are driving healthy people to drop coverage, Laszewski said.
"The individual market really gets clobbered in an economy like this," said Laszewski, a former health insurance company executive. "If it becomes unaffordable for (policyholders) and they're healthy, they tend to walk away, leaving sicker, more expensive patients on the policy."
The Los Angeles Times reported the rate hikes last week. They could affect many of the approximately 800,000 customers who purchase insurance directly from Anthem instead of getting coverage through an employer.
Anthem notified customers that rates would go up beginning March 1 and might start increasing more frequently than the usual annual increases. The increases ranged from 30 percent to 39 percent.
The company has declined to provide details on the rate increases, such as how many people would be affected or how much the new rates would be. It's also not clear whether customers in other states are being affected.
Indianapolis-based Wellpoint is the largest commercial health insurer based on membership. It operates Blue Cross Blue Shield plans in 14 states and Unicare plans in several others.
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Associated Press writers Erica Werner in Washington and Tom Murphy in Indianapolis contributed to this report.
