Insurers: Regulation will Destroy Us

President Obama's latest push for a health care overhaul could drive health plans around the country into insolvency, according to an insurance trade group.

A plan released Monday by the White House would give the federal government the power to regulate health insurers like a public utility. The Health and Human Services Department - in conjunction with state authorities - would be able to deny substantial premium increases, limit them or demand rebates for consumers.

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But the Blue Cross and Blue Shield Association warned against separating premium reviews from those that state regulators conduct to make certain health insurers have enough money to pay claims. Such a separation could lead to "multi-plan insolvencies," the association said in a statement.

"That means claims do not get paid," spokesman Jeff Smokler said.

BMO Capital Markets analyst Dave Shove, who follows the insurance industry, said he doubts a federal rate review would push health plans into insolvency. But he said many details remain to be resolved, and a federal regulator might motivate insurers to stop selling individual policies in some markets.

"That is a very real possibility," he said. "You probably will reduce choice for consumers."

Obama's proposal was panned Monday by health insurers who say the push to regulate them ignores the main reason their rates are rising: underlying medical costs. America's Health Insurance Plans CEO Karen Ignagni said premium regulation would do little to harness "soaring medical costs."

"This would be like capping the price automakers can charge consumers but letting the steel, rubber and technology manufacturers charge the automakers whatever they want," she said noting that insurance plans have seen rate increases in the range of 40 percent from care providers.

Ignagni dismissed as "politics" the focus on insurance reform instead of medical cost reform.

Insurers have faced waves of criticism over big premium hikes in individual insurance markets since WellPoint's Anthem Blue Cross said earlier this month it needed to raise rates in California by as much as 39 percent.

Large premium hikes or requests for them also have been reported in Maine, Oregon and Michigan, among other states. The Obama administration has pointed to these hikes - and billion-dollar profits the industry collected last year - as proof of the need for health care reform.

WellPoint, a target of administration criticism, made more than $4 billion last year, but the Indianapolis company says it lost millions selling individual health insurance in California.

Insurers and analysts say companies cannot subsidize their money-losing segments with premiums from other parts of their business because that would not be fair to those customers. They also say insurers need to make some profit to improve their business and generate a shareholder return, among other reasons.

Shares of the biggest health insurers climbed faster than the broader market in trading Monday. Analysts say that was fueled in part by Friday's preliminary announcement of an increase in 2011 Medicare Advantage rates that was bigger than expected.

Edward Jones analyst Steve Shubitz said Thursday's health care summit between Democrats and Republicans is more important now than the proposal Obama released Monday.

"What we have here is just another plan," he said. "It's combining things that were largely already out there.

"What's really important is determining after Thursday what's politically feasible. That's when I think the stocks and the market will start to readjust to the likelihood of substantial reform happening this year."