Obama Administration Warns About WellPoint's Mathematical Mistakes

May 6, 2010

The Obama administration has urged states to recheck the mathematics behind health insurer WellPoint's rate increases.

Writing to state insurance commissioners and governors on May 4, 2010, Health and Human Services Secretary Kathleen Sebelius called on them to investigate the company's data justifying rising health-insurance costs. She singled out WellPoint's decision to withdraw a nearly 40% increase on individual plans in California after an actuary had uncovered mistakes in the company's filing.

"In light of this recent finding, I urge that, to the extent you have authority to do so, you re-examine any WellPoint rate increases in your state," Sebelius wrote. "Even small errors can mean unaffordable premiums for policyholders," she said.

Several news outlets reported on this story.

Kaiser Health News reports that, according to California Insurance Commissioner Steve Poizner, WellPoint, Inc. had apparently overestimated future medical costs and had double-counted the effects of its policyholders aging.

According to The Wall Street Journal, the National Association of Insurance Commissioners expects members to take a second look at filings of all insurers in the wake of WellPoint's errors in California. "We're being super cautious to make sure every increase is justified," said Sandy Praeger (Kansas insurance commissioner and head of NAIC's health-insurance and managed-care committee).

Insurance & Financial Advisor reports that WellPoint has indicated it will refile rates because of "inadvertent miscalculations" in estimating medical costs, and to adhere to an upcoming standard in health care overhaul, which requires that insurers spend 80% of premiums on medical expenses.

According to a post for The Los Angeles Times blog, WellPoint spokeswoman Kristin Binns said, "The miscalculation was unique to the individual business rate filing in California." She indicated that most states had already conducted rate reviews—and that company's actuarial calculations were correct.

Source: The Wall Street Journal (May 5, 2010); The Los Angeles Times (May 5, 2010); Insurance & Financial Advisor (May 5, 2010); Kaiser Health News (May 5, 2010).