Behind the U.S. Attack on Anthem's Rate Hike: HHS Secretary Sebelius' Kansas Feud With the Company

(MoneyWatch)  Health and Human Services Secretary Kathleen Sebelius, who criticized Anthem Blue Cross of California for proposing a huge rate hike, has a history with the company going back to her eight-year tenure as Kansas Insurance Commissioner. In 2002, she blocked the proposed merger of Blue Cross Blue Shield of Kansas with Anthem, a rapidly growing, Indiana-based company that later merged with WellPoint. Sebelius argued that the conversion of the Kansas Blues to a for-profit subsidiary of Anthem would drive up insurance costs. After a lower court overturned Sebelius' decision, the Kansas Supreme Court affirmed it.

It is unusual for a high-ranking federal official to attack a pricing decision by a health insurance company. Because private insurers are regulated by the states, it is more likely for a state official to slam a carrier that demands an outrageous rate increase. Yet Sebelius publicly questioned Anthem Blue Cross' proposal to raise rates on individual policyholders by 30 to 39 percent.

Following an announcement by the California Department of Insurance that it would investigate the rate hike, Sebelius released a letter to Anthem that called on the company to justify the big increase and reveal the percentage of the individual market premiums it spends on medical care. Sebelius noted that WellPoint, Anthem's corporate parent, earned $2.7 billion in the fourth quarter of 2009 alone. The proposed increase, she said, is 15 times greater than the rate of inflation and threatens to make healthcare "unaffordable for hundreds of thousands of Californians."

Neither Anthem nor Wellpoint had an immediate response to Sebelius' letter. But Anthem earlier said that it was raising rates because of cost increases.

In an accompanying press release, Sebelius made no bones about the political nature of her request. "As we continue the health insurance reform debate in Washington, this announcement reminds us that too many Americans can be left with unaffordable insurance each time the rates or rules change in the private market. It's clear that we need health insurance reform that will give American families the secure, affordable coverage they need."

Politics aside, Sebelius' action has an extra punch coming from an official who served as Kansas Insurance Commissioner from 1994-2002 and was also president of the National Association of Insurance Commissioners. When she was appointed HHS Secretary, the National Association of Professional Insurance Agents endorsed her, noting that President Obama would now have a cabinet official "with direct knowledge of, and experience with, the state-based system of insurance regulation." But it is because of that knowledge that her assault on Anthem Blue Cross is so potent.

Meanwhile, the House Energy and Commerce Committee chaired by Rep. Henry Waxman (D-Calif.) has announced that it will also investigate the proposed rate increase by Anthem Blue Cross. Whether the joint assault by Sebelius and Waxman will have any effect is uncertain. But they are certainly focusing a lot of attention on how insurance companies determine rate increases. Where that will lead is anybody's guess.