Consumer Watchdog – Wellpoint's fake-ish numbers

Health insurance conglomerate Anthem Wellpoint recently tried to pawn off in Congress an internal analysis "proving" that health reform would raise health insurance rates 100% or more for many people. The result was to make supporters of health reform in Congress furious, though it did hand opponents some new talking points, no matter how false. A look deeper into the company's reams of data shows just how twisted Wellpoint's math is.

One of the reasons Wellpoint concocted the study, which is in conflict with Congressional Budget Office conclusions, is that the insurer is top-heavy in policies sold to individuals and small businesses. In both markets, policies are costly and benefits are skimpier than in employer-based insurance. In the individual market, insurers will refuse to sell you a policy for the slightest illness and if you later get sick, they'll look for any way to cancel your policy. It's fabulously profitable. And that's what scares Wellpoint about having to guarantee that they will issue policies to everyone.

Wellpoint's study, of course, looks at only its own policies and customers.

Wellpiont's main focus is on getting Congress to pass really punitive requirements for individuals and small businesses to buy their insurance, claiming that the company will otherwise just get stuck with sick people--a claim we don't believe (People want health care; they just need to be able to afford it) The Senate version of health reform would already penalize a single mother with a child $1,500 a year for failing to buy insurance. Wellpoint won't say how big the penalty ought to be, but obviously much, much, bigger.

So to scare us, Wellpoint concludes that the current bills would, just for lack of a bigger penalty, raise individual insurance rates by 50%. That's the biggest, scariest number in Wellpoint's study. But here's the fakeout: The 50% premum increase appears to be based on Wellpoint's current business model, not a reformed market.

Wellpoint simply looks at the few states, including New York, that already require the company to sell to anyone, but without much if any requirement to buy. (Masachusetts was not included in the study) It averages the higher costs in those states and voila, 50%. It doesn't attempt to account for the effect of a moderate penalty, or the fact that the "insurance exchanges" in every state would boost comparability and competition, especially if there's a public option. It ignores the fact that for at least three years, government would compensate insurers that did get stuck with sicker customers.

Here's how Wellpoint describes its methodology. Note that there's no data, no source citations, no real-world cost information--just assumptions.

The estimates... come from WellPoint’s experience of operating in multiple guaranteed issue individual markets that do not have an effective individual mandate to purchase coverage. 
The premiums in those guaranteed issue states are often multiples of those underwritten states. From our
review, the impact of guaranteed issue in the absence of an effective mandate ranges from an increase of 20% to 80%, and thus we show the midpoint increase of 50%. The upper and lower bounds were developed based on a review of existing literature, company experience and other industry sources.

Below is the company's chart for projected cost increases for an average family policy in California. Without that scary 50%, even using all of Wellpoint's own assumptions, it's pretty much a wash:

The one other significant cost is a 12% premium increase from "higher benefit levels." That's the requirement in reform legislation that policies actually cover 70% of average yearly health costs. Some individual policies cover less than 50% of average costs. So the better policy may have a slightly higher premium but make up the the difference with lower copays and deductibles, and fewer coverage exclusions. 

No wonder anyone who's read this stuff isn't believing Wellpoint.