Obama Administration Takes on Health Insurance Companies

Administration says insurance companies pull in profits while raising premiums

February 18, 2010, 5:39 PM

Feb. 18, 2010— -- Health and Human Services Secretary Kathleen Sebelius railed against the insurance companies today for raising premiums at a time when companies still post profits.

"The five largest insurers in America have declared more than $12 billion worth of profits in 2009," Sebelius said at a news conference. One of those companies, WellPoint, is a for-profit company that owns Anthem Blue Cross of California. They are about to increase rates on coffee shop owner Jesse Fink.

Come May, he'll pay $325 more per month to insure his family.

"I felt like it was extortion. I felt like it was a crime. They had you by the throat and if you don't like it leave. That's not right," said Fink.

2009 a Record Year for Insurance Company Profits

it was a banner year for health insurers. While those profits were coming in, 2.7 million of the companies' customers lost their insurance and the average premium for health insurance went up -- 5.5 percent for family coverage and 2.6 percent for individual coverage, according to the Kaiser Employer Health Benefits Survey.

Today, the government pointed to examples in six states where insurers request premium increases of anywhere from 20 percent to over 50 percent.

Companies Say Higher Medical Costs Mean Higher Premiums

The insurance companies see it differently. Though in most states, the companies don't dispute the numbers in the government report, but they say the requests for higher premiums were not driven by profit.

Insurance Companies Say They're Losing Money

Brad Fluegel of Wellpoint told ABC News, "What we're experiencing in California is very rapid increases in medical costs."

And as more healthy people lose their jobs and drop their insurance coverage, more sick people -- the most expensive patients -- remain in the insurance pool.

Other insurers say they are actually losing money right now. Blue Cross Blue Shield of Michigan estimates they lost $280 million last year and by law have to ask for an increase in premiums to cover their losses.

"We're not prospering here. Our reserves have declined for 5 straight years. We're paying out $1.20 for every dollar we collect in premiums. We're losing hundreds of millions a year on only 7% of our total membership," said Andrew Hetzel, spokesman for Michigan Blue Cross Blue Shield.

Critics Say Insurers Are Dropping Unprofitable Patients

Critics of the companies don't buy it. "While everyone else seems to be in a recession, the private health insurance companies are making a tremendous amount of money," said Jackie Schechner, the National Communications Director for Health Care For America Now.

How could that happen? Schechner says the companies essentially get rid of customers who aren't going to make them any money -- old, sick, or high-risk patients. That way, healthy customers are still paying high premiums but the insurance companies have to make fewer big payouts. If that accusation were true, the companies could be in violation of the law.

"They raise rates and companies can't afford to cover their employees anymore" says Schechner. "People try to go out and get insurance in the private market and it's just entirely unaffordable for them because the prices of premiums are so high. And if you can get something you can afford and the premiums are low, chances are it's going to be lousy coverage and it's not going to actually give you the health care benefits you need."

Schechner says the answer is health care reform. That's one point that the critics and insurance companies can agree on. Brad Fluegel of Wellpoint said, "We're eager to have a fact-based, rational debate about the drivers of these issues and what we can do to fix them."

The trouble is that the insurance industry and the Obama administration have very different ideas about what that reform should look like.

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