The Wellpoint Effect

Call it the "Wellpoint Effect." Last month, the giant health insurance company, Wellpoint, announced premium increases for its individual coverage policy holders in California of 25 percent on average and as high as 39 percent. A new survey by the Center for American Progress Action Fund found double digit premium increases for individual policy holders in 11 of the 14 states in which Wellpoint operates. Other reports now document significant rates hikes by other insurers in individual and small group markets across the nation.

President Barack Obama publicly criticized the hikes in a television interview before the Superbowl. His Health & Human Services Secretary, Kathleen Sebelius -- a former state insurance commissioner -- has kept the pressure on, asking the heads of five major health insurers to meet with her this week.

Members of Congress have weighed in, including Senate Majority Leader Harry Reid and House Energy & Commerce Chairman Henry Waxman who held a February 24th hearing on the hikes, including testimony from Wellpoint CEO Angela Braly. Waxman revealed internal company documents showing that Wellpoint paid 39 executives at least one million dollars in 2008, and spent $27 million for 103 executive retreats in 2007 and 2008. Braly blamed the economy and rising medical expenses for premium hikes.

These events occur as Congress seeks resolution on its year-long process to enact comprehensive health reform. The hikes add urgency to the pending legislation's provisions to empower states and the federal government to begin or beef up regulatory oversight of premium increases.

This national attention to local and state premium increases is unusual and unprecedented. In the past 25 years, there has never been a time when premium increases in any state's individual health insurance market have become a national issue. The individual health insurance market is called a "residual market" because it is the last or near-last resource for 13 million Americans who can't get employer coverage and who do not qualify for any public insurance. Individual premium increases become statewide issues, never national.

Until now. The California premium hikes would not have caught national attention were it not for the concurrent timing with national reform. Hence, the "Wellpoint Effect." If national health insurance reform legislation is approved, rate hikes in state and local markets will become nationalized as an issue of ongoing concern. This change will instigate new, formidable pressure on insurers to bargain tougher with medical providers for lower rate increases, and up the ante on insurers' own business practices and behaviors.

This is not the first time a federal health reform initiative focused on a single industry. As President Bill Clinton began his ill-fated reform process in 1993, his point person, First Lady Hillary Clinton, criticized the pharmaceutical industry for drug price increases and threatened imposition of price controls.

While the Clintons did not carry out the threat, the attention was followed by a stunning drop in the rate of drug price increases, lasting several years. This response was dubbed "the Hillary Effect" by industry observers.

A current analog can be seen in Massachusetts where its 2006 health reform law -- the model for Congressional reform -- expanded access for the uninsured, making only feint moves at controlling health costs. Since 2006, Massachusetts has had a non-stop public conversation about restraining health costs, the most robust cost control conversation in any state.

The Legislature and Governor Deval Patrick already approved one cost reform package in 2008. The Boston Globe published an investigatory series on the market power of hospital systems and insurers. Attorney General Martha Coakley released a report spotlighting market concentration as the cause of price increases -- not increases in the volume -- are behind premium increases. Recently, Governor Patrick proposed that the State review and overrule excessive rate hikes by insurers and rate increases between insurers and medical providers.

Pending federal health reform legislation contains no magic bullet to lower the nation's health costs. Instead, as New Yorker writer Atul Gawande observes, it focuses on pilots, demonstrations, a tax on high cost plans, and other mechanisms to shift the cost trajectory.

As in Massachusetts, if national health reform happens, we will witness the launch of a long term, serious national conversation about rising health care costs and what to do about them.

It's the start of the "Wellpoint Effect."

John E McDonough is the Joan H. Tisch Distinguished Fellow in Public Health at Hunter College in New York, and a former staffer on the US Senate Committee on Health, Education, Labor and Pensions.