February 18, 2010 / 2:25 PM / 9 years ago

UPDATE 1-Obama team raises pressure on health insurers

* Without reform, big premium hikes will continue-report

* Top execs at big healthcare firms earned $24 mln apiece

* Sebelius to release report on Thursday (Adds industry response)

WASHINGTON, Feb 18 (Reuters) - The Obama administration ratcheted up pressure on health insurers Thursday, saying some companies planned double-digit rate increases while earning billions in profits and paying their bosses multimillion-dollar salaries.

In a report issued by the Department of Health and Human Services, the administration said: “These massive increases are disturbing examples of the problems that make reforming our health insurance system more important than ever.”

The report came as President Barack Obama tries to revive his stalled healthcare reform plans and two weeks after Health Secretary Kathleen Sebelius sent a letter to Anthem Blue Shield of California demanding information about its plan to boost premiums by up to 39 percent.

A spokesman for the health insurance industry’s trade group said “the soaring cost of medical care” was driving the increase in premiums, while the percentage of premiums going toward administrative costs and profits had declined.

“There has been an effort throughout this debate to shift the focus to the insurance industry,” said America’s Health Insurance Plans spokesman Robert Zirkelbach, “but the data show that it’s underlying medical costs, not health plan administrative costs, that are fueling the rise in the cost of healthcare coverage.”

Healthcare spending in the United States is about $2.3 trillion annually, or about 16 percent of the U.S. economy. Despite the high spending levels, some 30 million U.S. citizens are uninsured and do not have access to routine healthcare.

Employers complain that the cost of providing health insurance for their workers is affecting their ability to compete against companies from other countries.

Work on healthcare reform, Obama’s top domestic priority, ground to a halt in the Democratic-controlled Congress last month.

The House of Representatives and the Senate had passed different versions of healthcare reform and were attempting to reconcile the bills when Democrats lost control of the Massachusetts Senate seat previously held by Edward Kennedy, who died last year. That has given rival Republicans the ability to use procedural hurdles to block legislation.

The Los Angeles Times reported in early February that Anthem Blue Cross, a WellPoint Inc WLP.N unit, planned to increase individual market premiums for its health insurance by up to 39 percent in the coming month. After Sebelius challenged the decision, the company delayed the move for two months.


“This shocking increase isn’t unique,” said the report, which Sebelius will release at a news conference on Thursday. “Across the country, families have seen their premiums skyrocket in recent years, and experts predict these increases will continue.”

The report cited several companies as having planned big premium hikes in recent years. Anthem sought them in several different Northeastern states, the report said, while Blue Cross/Blue Shield of Michigan wanted a 56 percent increase for plans sold on the individual market.

UnitedHealth, Tufts and Blue Cross asked for 13-to-16-percent increases in Rhode Island, and some plans in the individual market in Washington increased premiums by 40 percent until the state imposed stiffer regulations, the report said.

“Leading experts have predicted that without reform, these increases will continue,” the report said, “and the federal government and most states don’t have the legal authority to block or reduce health insurance rate increases.”

Profits for the 10 largest insurance companies rose 250 percent from 2000 to 2009, 10 times faster than inflation, the report said.

The top five — WellPoint, UnitedHealth Group Inc (UNH.N), Cigna Corp (CI.N), Aetna Inc AET.N and Humana Inc (HUM.N) — took combined profits of $12.2 billion, up 56 percent from 2008, it said.

The chief executives of the top five received $24 million on average in 2008, the report said.

Administrative costs at insurance companies grew faster than the amount spent on prescription drugs over the past decade, the report said, a trend expected to continue. Three of the top five insurers cut the proportion of premiums they spent on customers’ medical care last year, committing more to salaries, administrative expenses and profits, it said.

America’s Health Insurance Plans’ Zirkelbach said the industry’s profit margins have historically been around 3 percent or 4 percent — “much less than other industries, even within the healthcare sector.”

Recent data released by the federal government show increased spending on hospital care, physician services and prescription drugs are leading to higher health spending, Zirkelbach said.

The report said a lack of competition among insurers was partly to blame for the rapidly escalating costs. Nearly all U.S. insurance markets are highly concentrated, and “without competition, insurers have no reason to drive down costs.” (Additional reporting by Lewis Krauskopf in New York; Editing by Todd Eastham and Lisa Von Ahn)

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