March 09,2010

Grassley comment on Wellmark response to his questions about rate increase

M E M O R A N D U M

TO: Iowa Media
RE: Wellmark rate increase
DA: Tuesday, March 9, 2010

Senator Chuck Grassley made the following comment about the response he receivedfrom Wellmark to his February 23 inquiry about the insurer’s rate increase. A copy ofGrassley’s original request follows the statement.

“Two weeks ago, I asked Wellmark a series of questions in a letter to the CEO, after theinsurance company announced its big rate increase for Iowans. I’m glad my letter got moreinformation for consumers on the rate increase. It also seems to have gotten the attention of theGovernor, who now has temporarily reversed his own insurance commissioner. The delay andindependent review might be coming a little late, but we’ll all have extra time to look at the rateincrease more closely.

“I got an initial response from Wellmark on Friday, and it may be along the lines of whatthe independent actuary finds in the next 30 days. The response provides some answers, but Istill have strong concerns about the level of increase, especially given Wellmark’s significantreserves. This deserves more investigation, along with other things.

“Health care costs are increasing at an unsustainable rate, especially for people buyinginsurance on their own. What’s worse, the pending health care legislation that could be pushedthrough Congress in the next three weeks would make health insurance premiums go up evenmore than they are going up already. That’s according to the Congressional Budget Office. Ontop of that, the health care bills passed by the House and Senate, and now the President’s versionof those bills, would give $400 billion in direct payments to the insurance industry. That’smoney for insurance payments taken from tax increases and Medicare cuts. The insuranceindustry benefits from this bill becoming law because it mandates that every American buyhealth insurance and it creates a new entitlement program that pays subsidies directly toinsurance companies to buy health insurance, two things President Obama opposed when he wasa candidate for office. The pending health care legislation fails to take on rising health care costsand premiums, and that’s a major reason why Congress should start fresh, and get quickly towork on health care reforms where there’s broad-based agreement to drive down costs forindividuals, families and employers, and impose stronger rules on insurance practices and, bydoing so, make coverage more accessible.”

For Immediate Release
Tuesday, February 23, 2010

Grassley asks Wellmark for information about rate increase

WASHINGTON – Senator Chuck Grassley is asking Wellmark for information about itsplan to increase health insurance rates.

In a letter sent today, Grassley requested an accounting of the factors considered,including any independent actuarial analysis, data about reserves, and documentation of theinsurer’s effort, announced in 2007, to make itself a true nonprofit.

“I’m asking because Iowa consumers deserve to know, and as the health care debate inWashington continues, insurance rate increases are a major issue. The health reform legislationpassed last year would not drive costs down. In fact, health reform bills passed by the House andSenate would cause premiums to go up even more than they already would have gone up,according to the Congressional Budget Office,” Grassley said.

The text of Grassley’s letter to Wellmark is here.

February 23, 2010

Mr. John Forsyth
Chairman and Chief Executive Officer
Wellmark Blue Cross and Blue Shield
636 Grand Ave
Des Moines, IA 50309-2565

Dear Mr. Forsyth:

As the senior senator from Iowa and Ranking Member of the Senate Committee onFinance, I am writing regarding Wellmark Blue Cross and Blue Shield’s plan to increase healthinsurance premiums by as much as 22 percent on April 1, 2010. At a time of recordunemployment rates and sluggish wage growth, I’m concerned that a rate increase of thismagnitude could force some Iowans to drop health insurance entirely. This would not only havea negative impact on the health of Iowa citizens, but could also place a greater financial burdenon providers that will be forced to deliver more uncompensated care.

Recent reports have stated that Wellmark Blue Cross and Blue Shield plans to raisepremiums by an average of 18 percent for approximately 80,000 of its 1.8 million customers.This is almost twice as much as last year’s 9.3 percent increase. Moreover, some 44,000Wellmark beneficiaries will see rate increases as high as 22 percent. I’m particularly concernedabout the level of these increases since the Centers for Medicare and Medicaid Services’ Officeof the Actuary recently reported that health care spending increased by a much lower rate of 5.7percent in 2009. I understand that the individual and small group health insurance markets faceunique challenges regarding adverse selection and that the recent economic downturn has likelyexacerbated these challenges. However, I also believe Iowans deserve a clear explanation forwhy premiums are increasing at a much faster rate than national health care spending.

As Ranking Member of the Senate Committee on Finance, I take my oversightresponsibilities very seriously and I have always believed that greater transparency allowsconsumers to make better choices. Accordingly, in an effort to obtain more information aboutWellmark’s plan to increase health insurance rates on April 1, 2010, I ask that you respond to thefollowing questions and requests by no later than March 8, 2010. In responding, please repeatthe question followed by the appropriate response.

1. What factors were taken into consideration when coming up with the health insurance ratesfor 2010?

2. Were the 2010 rates reviewed by any independent actuarial firms before being presented tothe Iowa Insurance Division? If so, please provide a copy of this independent analysis and anysupporting documentation.

3. Please provide a report on Wellmark’s average Medical Loss Ratio in its individual and smallgroup products for each of the last five years along with a description and explanation of thefactors involved.

4. Please provide a report on the amount held in reserves for each year for the past five yearsalong with an explanation of how Wellmark Blue Cross and Blue Shield’s reserves compare toany minimum levels required by the Iowa Insurance Division, and whether Wellmark utilizedany reserves to mitigate rate increases for 2010 or for any year within the five year period.

5. In 2007, Wellmark announced its goal to be a pure non-profit and reduce profits to 0 percent.Please provide copies of Wellmark’s Form 1120, U.S. Corporation Income Tax Return, for thepast five years. Please also provide copies of all studies and reports used to determinecompensation for the officers listed on Schedule E of Form 1120.

Thank you for your attention to this important matter. While there are strong differencesof opinion on how to improve the U.S. health care system, there is widespread agreement thathealth care spending levels are unsustainable. Your answers to the questions listed above willnot only be informative for Iowa consumers, but will also be helpful as Congress considers potential policy solutions.

Sincerely,

Charles E. Grassley
Ranking Member