Matthew Holt

Wellpoint’s wasted opportunity

Sometimes with something so egregious gets written that, even if it’s in the Wall Street Journal, you have to notice it. Angela Braly, the CEO of Wellpoint—compensation a hair under $10m in 2009—ought to be happy, even though Joseph Rago in the WSJ is surprised about that. It looks like the health reform bill which put much of Wellpoint’s highly profitable individual and small group business at risk is dead, and this week Wellpoint started putting up rates between 35% and 80% in the California market (where it’s Anthem Blue Cross).

But the WSJ quotes her as calling health reform a “wasted opportunity”. Funnily enough Wellpoint and the trade association it funds, AHIP, were on both sides of the debate. Pushing Congress to give it 30 million more customers as part of the bill, and then surreptitiously funding the Chamber of Commerce to oppose health reform (and putting pressure on the Blue Dogs, and the DINOs in the Senate) when some of the terms of the House Bill started to look less favorable (85% Med loss ratios limits among them).

I’d had some semi-decent hopes for Braly and her team.

In 2007 Braly had replaced the reprehensible Larry Glasscock as CEO and seemed to have a longer term view to establish real system value. The high point of this was the 2007 announcement that Wellpoint would pay staff bonuses on the health status of its members, but it’s also funding the Health Care X Prize. Then Wellpoint’s stock value collapsed at the start of 2008 when it became apparent that they were going to be losing members in the recession and Medicare Advantage dollars from the Democratic Congress. I had vague concept that this might mean a real change in the way the company would behave. But realistically that was never going to happen.

Instead, as usual short-termism is in. Health reform that creates a stable long-term private insurance market is opposed—whether proposed by a California Republican or a moderate Democratic President. And with Wellpoint’s stock price up double from its late 2008 low, I suspect Braly is looking forward to cashing in rather more stock options when the profits from this year’s premium increases add to the stock price.

Wellpoint

But that’s all understandable. It’s just business and who cares if, after this collapse of health reform, next time around it’s very likely to be a single payer system that does away with health insurers altogether. Braly will be long gone by then—even if some of her colleagues in the non-profit world would like their organizations to stay around.

But what is really weak is the feeble attempt Wellpoint has made, using what the WSJ calls its tools as “an industry leader in data analytics” to actually do anything to improve its members’ health status. Later this week I’m going to give you a visceral example of that using a member I know very well (yes, me). But for now I remind you of these words from an article I wrote about Braly’s two-ago predecessor, which was called Too much Fawning about Len Schaeffer

So there you have it. Being really smart about pricing and risk is how you run a successful insurance company…..But this just goes to show that what Schaeffer is good at — running a lean mean ultra-competitive pricing business — has little if anything to do with solving the wider problems of the health care system that he’s so eloquent about

It appears that a decade on little has changed.

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car insurance detailsGary LampmanjdActuaryMG Recent comment authors
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Guest

You actually make it seem so easy with your presentation however I find this matter to be really something which I believe I would by no means understand. It seems too complex and very large for me. I’m taking a look forward in your subsequent post, I will attempt to get the cling of it!

Gary Lampman
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Gary Lampman

Its about hedging your bet against the demographics of the insured.Continuing to underwrite the best bet and casting off those who could drain Profits. Some would consider it scamming and greed.I consider it to be embezzlment and fraud.Although they have every right to Choose their Clients. They have no right to Gauging those who are being Charged more and getting a petence in return. Insurance needs to learn to do More for less. Instead of using it as a Entitlement Program. The truth is;this industry has made a abundances of money justifying actions and hiding actual profitability. While the majority… Read more »

Wendell Murray
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jd: “I still would like to see what table or conclusion you are citing.” I will find it when I get a chance. I have it somewhere. The percentages I cite reflect all costs (including profit, aka cost of capital) that are not accounted for as payment for claims. If net income (i.e. after-tax income) is roughly 3-4% industry-wide – a figure I have not tried to verify, then the balance represents other costs including income tax payments to the extent that they occur. I have not looked at the the categories in the consolidated or individual financials in any… Read more »

archon41
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archon41

“Processing” is the right word. I’ve read several times that only about 5% of Medicare claims are subject to audit. Little wonder that providers declare they get paid with less “hassle” by Medicare than insurers.

jd
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jd

To restate: Medicare claims are administered by private companies. In effect, Medicare is a giant self-insurance scheme with the US government as the self-insurer for its elderly citizens. It hires TPAs (third party administrators) to handle the customer service and claims processing.

jd
Guest
jd

Ugh, I did confuse you with Wendell Potter. Sorry. I still would like to see what table or conclusion you are citing. The numbers can’t be saying what you think they are. One mistake people make is to conflate the total system admin ratio (about 30%) with the insurer admin ratio (about 13%). But your numbers from AHIP don’t really gibe with that interpretation either. archon41, Medicare at 5-6% and very large group at 7% is about right. And don’t forget that Medicare claims are paid by private companies (largely the Blues), so the similarity of those numbers is not… Read more »

archon41
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archon41

Relieved to know you’re not Potter. Looks like my memory played a couple of tricks on me. The article by Ezra Klein is Administrative Costs in Health Care: A Primer, Washington Post, July 7, 2009. He pegs the administrative costs of Medicare at 5 to 6%, and such cost for an insurer, for employer groups of 1000 or more, at 7%. The latter escalate sharply, as the size of the pool declines. I would suppose that these costs might be significantly reduced by pooling small employers and individuals in “exchanges,” or whatever. Ezra also seems to think that provider costs… Read more »

Wendell Murray
Guest

archon41: Okay, you have made your point and it is valid. I fully agree regarding an echo chamber. I prefer reading viewpoints contrary to mine in any case. Of course when facts support the viewpoint. Good means of gaining new insights as well as learning relevant facts previously unknown. “incomplete data” Sufficient data are available on the impact of self-funding by large companies or other large organizations. I have not made an effort to search for them or for good analysis based on them. I suspect Health Affairs has more than a few good articles on the topic however. I… Read more »

archon41
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archon41

We are often obliged to draw inferences from incomplete data. If it is true (and I’m not certain it is) that employers haven’t been able to reduce their costs much by self-insuring, it is not immediately apparent why it should be supposed that great savings can be reaped by eliminating insurer “administrative costs,” including profits.
I would, of course, been ejected long ago for my irreverence from Democratic Underground. But of what value is a hermetically sealed echo chamber?

Wendell Murray
Guest

jd: One other point regarding the financial and operational dynamics of medical service providers. The potential for substantial cost savings is there. Take a look at any of the statistics collected by the MGMA, a sampling exercise done yearly by that organization. Also take a look individually at the financials/headcount/etc. of a representative sample of physicians practices you might be familiar with so that those statistics can be put in the context of a living and breathing practice. Oriented towards small practices, but applicable to any size practice, is a venture whose website is now http://www.idealmedicalpractices.org/ that provides insightful, practical… Read more »

Wendell Murray
Guest

archon41: I apologize for my rampage on this. Inexcusable on my part, but nonetheless below the vituperation I still prefer to see more facts and relevant statistics and less provocateurism on these issues, such as jd’s excellent comments above.
jd: The 22-28% figures come from consolidated financial statistics provided by the AHIP for 2006-2008. Those are the years readily available and that is the range.
Otherwise, excellent points as I note above. You confuse me with someone else by the way.

archon41
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archon41

Thanks for the link, jd. Some real gems buried in the archives here. It will take me a while to digest it all. I’ll just mention a few things while they’re fresh on my mind. I don’t have a cite for this, but I’ve read several times that the state taxes on gross premium average about 2%. That could be a significant hunk of change, when comparing administrative costs of insurers and Medicare. Another thing I didn’t see mentioned is that it might be a little misleading, in this comparison, to focus on average administrative costs. There’s an interesting study… Read more »

jd
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jd

Just re-read my last post and realized it isn’t as clearly written as it could be. Apologies to those who waded through it.

jd
Guest
jd

Wendell, it is certainly true that reducing the gross income of physicians need not result in reducing the net income. However, with the scale of the reform we would need to get in line with other nations, it is impossible to imagine that all the savings comes out of administrative efficiencies. Our doctors do take home more money than docs in other nations (especially specialists). Why would we pay the same share of GDP as they do for healthcare, yet still pay our docs twice as much as theirs? That said, I do not think we’ll actually match other nations… Read more »

jd
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jd

archon41, here is a discussion several of us had on self-insurance a while back on this blog. A long discussion, but a number of good points are made there. Quoting myself with a few small edits: [self insurance is] about three things (1) improving cash flow, (2) improving profit, and (3) reducing state regulation. Self-funded employer health plans are regulated under ERISA, not state law. This is a huge benefit for the large national or multi-state companies that constitute the bulk of the self-insured. They don’t need to devise different benefits to conform to 20 or 30 different state regulations.… Read more »