The federal secretary of Health and Human Services, Kathleen Sebelius, has sent a letter to Anthem Blue Cross saying, "I was very disturbed to learn through media accounts that Anthem Blue Cross plans to raise premiums for its California customers by as much as 39 percent. ...Your company's strong financial position makes these rate increases even more difficult to understand. As you know, your parent company, WellPoint Incorporated, has seen its profits soar, earning $2.7 billion in the last quarter of 2009 alone."
FutureOfCapitalism.com predicted this in a November 16, 2009 post headlined "Unintended Consequences." Commenting on a New York Times article about increases in drug prices ahead of health care overhaul legislation, we likened it to credit card companies raising rates before new laws take effect, and wrote, "The newspaper could have done the same story about health-insurance premiums -- I just found out that my family's are increasing 17% next year. ...left-wingers see this as an argument for swifter, more aggressive regulation. But there's a case, too, that the whole episode is an argument for less regulation, because businesses will find a way to make a profit one way or another, and by imposing regulations that artificially limit profits in one period, the government actions in essence force the businesses to try to make it up all at once before the tougher rules kick in."
It's also interesting to see the Obama administration take aim at WellPoint; in a December post, we had reported that "the director of the health care staff of the Senate Finance Committee worked until recently as vice president for public policy and external affairs at WellPoint."
If Congress wants to pass a law, and the administration wants to sign it, setting prices for health insurance and limiting insurance company profits, or for gasoline prices and oil company profits, that's one thing. But to deal with the matter just by having government officials writing pointed letters to companies whose profits and pricing they dislike is another thing. It's not the rule of law, with predictable, announced rules that apply equally to everyone; it's something else, more arbitrary. If WellPoint's profits and prices get high enough, it would usually tempt new entrants into the business to compete, the self-correcting mechanism of the free market. It would tempt those new entrants, that is, if the new entrants didn't have to face the prospect of new laws limiting their prices and profits, along with regulations that make entry difficult, complex, and capital intensive.
Meanwhile, it's interesting to compare WellPoint's performance to that of another health insurance company, Aetna. Aetna's fourth quarter profit was down year-over-year, to $165.9 million. This came after President Obama's statement back in June that "Aetna is a well-managed company and I am confident that your shareholders are going to do well." It raises some real questions about what constitutes appropriate government involvement in a competitive industry, if the president is going to go around endorsing one health insurance company as "well-managed," while his health and human services secretary is going around writing letters to a competing company asserting, in essence, that it's raising its prices too high and making too much money. What are the criteria? What are the rewards and penalties? Where in the Constitution does the executive branch get this authority?