Concerns for Savings in Anthem Purchase

While Anthem Inc. was completing its purchase of WellPoint Health Networks Inc. in California last month, Dan Mercer, a chaplain at a youth detention facility in Maine, was doing some math.

Mercer isn’t eligible for state employee health benefits because he’s a contractor at the South Portland facility. Instead, he buys his own Anthem Blue Cross Blue Shield policy, which costs $480 a month and kicks in after he has spent $150 a year on medical care.

Under a rate-hike plan that Anthem filed with state regulators, his premium would rise in January to $732 a month -- eating up more than a third of his take-home pay. Willing to take on a higher deductible to keep the premium he pays now, he called Anthem to ask how high that deductible would have to be. He said he was shocked by the response: $15,000.

“That’s like not having insurance,” Mercer, 44, said. “That’s not an option.”

The creation of the WellPoint Inc. health insurance giant, with 28 million policyholders, was touted as a win for consumers: The economies of scale resulting from the super-sized marriage of Anthem, operating Blue Cross and Blue Shield plans in nine states and Puerto Rico, and WellPoint Health Networks, the parent of Blues plans in California, Wisconsin, Georgia and Missouri, would hold down premium increases.

Across the country, consumers like Mercer are hoping that happens. But healthcare experts aren’t sure how big a payoff consumers might see.

The new WellPoint covers more people than any other private insurer and is second in size only to Medicare, which insures 40 million older Americans. But WellPoint must negotiate deals with doctors and hospitals in every market, so its size may not matter as much as some might imagine.

Observers don’t get clear clues about what the future might hold by looking at Anthem’s history, either. A major player in the health insurance business even before the acquisition, it has been hitting many policyholders with double-digit premium hikes -- as have most other insurers.

Anthem’s performance in states where it has been a major insurer offers some insight, up to a point. Insurance plans can’t be compared “premium dollar to premium dollar because their products are different,” pricing varies widely and every state imposes unique mandates, said Dawn Touzin, the former director of Community Catalyst, a Boston-based health consumer advocacy group. “What about the deductibles? What are the co-pays? What are the exclusions? It becomes a difficult thing to measure.”

That said, California’s 7 million Blue Cross policyholders are expected to notice little difference now that the company that owns their plans is based in Indianapolis, not Thousand Oaks, as was WellPoint Health Networks.

Before endorsing the acquisition -- initially opposed by California Insurance Commissioner John Garamendi -- state regulators won the power to review and reject rate hikes in certain circumstances.

But the best protection against premium hikes is the number of insurers vying for Californians’ business, said Glenn Melnick, a Rand Corp. economist and a USC professor of healthcare finance whose position is endowed by Blue Cross of California. “Literally, these plans compete over $2- and $5-a-month differences. Consumers will switch for $10 a month.”

The market couldn’t be more different in Maine, where Atty. Gen. Steven Rowe is fighting Anthem’s bid to raise premiums in 2005 for 35,000 individual policyholders -- some by as much as 100%.

Maine residents already pay notoriously high premiums for a variety of reasons, and many insurers have left the state. Anthem, which acquired the Maine Blues almost five years ago, is the only company still offering coverage to people who don’t have access to large employer-sponsored benefits. After experts in the attorney general’s office analyzed financial data Anthem submitted under a confidentiality agreement, the office concluded that Anthem was baking too much profit into its premiums.

“Their rates were excessive,” said Christina Moylan, an assistant attorney general, who under the agreement isn’t allowed to disclose the profit margin the company wants to achieve.

That wasn’t the only issue. “They also built in a risk margin, and we thought they’d already overprojected what their claims would be,” she said. “To build in a risk margin on top of that would further add to the profit.”

Anthem said the Maine increases, the first in two years, would average 14.7%. Jim Parker, Anthem’s general manager in Maine, said the company was just trying to get ahead of rising medical costs. “Over the last year,” he said, “our premium increases have been equal to or less than the cost of care trends we’ve been seeing in Maine.”

A decision on the rate request is pending.

Anthem, which grew out of Blue Cross Blue Shield of Indiana, began buying up Blues in other states in 1995. They were ripe for picking. Aetna Inc., Cigna Corp. and other public companies had moved into the health insurance business, and their leaner operations allowed them to take customers from the Blues, which were mostly nonprofit public trusts or mutual companies. The rise of health maintenance organizations made the Blues more vulnerable.

In Colorado, Anthem was viewed as a white knight, at least to some. The nonprofit Blues plan in Colorado “really needed a rescue” in 1999, recalled then-state insurance commissioner Bill Kirven. Anthem “turned it around.”

Anthem inherited a backlog of problems, including months of unanswered complaints from consumers and physicians alike.

“They weathered six or nine months of people screaming at them,” said Dr. Jay Want, president of Physician Health Partners, a management group near Denver. “They brought some operational discipline that the operation sorely needed. They got more efficient, and they weren’t showy about it. They didn’t say, ‘We’re here to clean up Dodge.’ They said, ‘We’re responsible now. We’re fixing it as fast as we can.’ ”

The buying streak hit a roadblock in Kansas. In February 2002, then-Insurance Commissioner Kathleen Sebelius turned down its bid for the state’s nonprofit Blues, saying it “would have cost Kansas businesses, small employers and families millions of dollars in additional health insurance premiums.” To achieve the kind of profit margins it was getting elsewhere, Sebelius concluded that Anthem would have to raise premiums more than would the Blues’ nonprofit operator.

The Kansas analysis, which focused on the effect on consumers, provided a new formula for evaluating the proposals. Since then, insurance commissioners in North Carolina, Washington and Maryland have followed suit, rejecting proposals to convert Blues to profit-oriented companies. None of them involved Anthem.

In 2002, a few months after losing the Kansas bid, Anthem staked its flag in Virginia, acquiring a Blues plan that already was operating as a for-profit company. It now covers 2.8 million people in plans that range from Medigap insurance to employer benefits. It is the market leader in every segment it serves except Medicaid.

“We pride ourselves on giving absolute world-class service here,” said Tom Snead, president of Anthem’s Virginia operations. Virginia policyholders apparently agree: They lodged 101 complaints last year, fewer than most plans in that state, according to a national insurance commissioners databank.

But Anthem can’t count John Ellis among its fans. Last year, the Chesapeake, Va., carpenter fell off a high-pitched roof, breaking all his ribs on one side, as well as his collarbone and several vertebrae. One of his lungs collapsed and his spleen ruptured.

John’s wife, Yvette, had signed up the family, which includes a 4-year-old son, for health insurance with Anthem a month before the accident. She said Anthem had cashed their premium check and twice assured Yvette that John was covered.

But when he was still in the hospital, the company said the policy hadn’t been in force at the time of the accident. “When they denied me, I was still in a coma,” John said. The medical bills came to $65,000.

The Ellises sued Anthem. “We had completely exhausted all administrative actions with the insurance company,” John said. “Our surgeon was on the phone with them personally, pleading my case.”

John, the sole breadwinner, returned to work after three months. The Ellises said Anthem had offered to settle but hadn’t offered enough to cover all their bills, including legal fees.

“They have so much money they wear you down,” Yvette said. “They bank on the fact that you are going to break.”

Snead said he couldn’t discuss the case. But in his view, consumer disputes are relatively few, “given that we have millions of insureds.”

It’s that scope that concerns Joe Ditre, a consumer advocate in Maine, where he believes Anthem has taken unfair advantage of its near-monopoly position.

“They are offering an essential product, an essential service,” he said. “We’re not talking about steel or cars or widgets. We’re talking about healthcare. They’ve got an essential service that people need. To hold [policyholders] hostage because they can get higher prices I just feel is wrong.”