[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]








    PREMIUM INCREASES BY ANTHEM BLUE CROSS IN THE INDIVIDUAL HEALTH 
                            INSURANCE MARKET

=======================================================================

                                HEARING

                               BEFORE THE

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 24, 2010

                               __________

                           Serial No. 111-97






[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]





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                    COMMITTEE ON ENERGY AND COMMERCE

                 HENRY A. WAXMAN, California, Chairman
JOHN D. DINGELL, Michigan            JOE BARTON, Texas
  Chairman Emeritus                    Ranking Member
EDWARD J. MARKEY, Massachusetts      RALPH M. HALL, Texas
RICK BOUCHER, Virginia               FRED UPTON, Michigan
FRANK PALLONE, Jr., New Jersey       CLIFF STEARNS, Florida
BART GORDON, Tennessee               NATHAN DEAL, Georgia
BOBBY L. RUSH, Illinois              ED WHITFIELD, Kentucky
ANNA G. ESHOO, California            JOHN SHIMKUS, Illinois
BART STUPAK, Michigan                JOHN B. SHADEGG, Arizona
ELIOT L. ENGEL, New York             ROY BLUNT, Missouri
GENE GREEN, Texas                    STEVE BUYER, Indiana
DIANA DeGETTE, Colorado              GEORGE RADANOVICH, California
  Vice Chairman                      JOSEPH R. PITTS, Pennsylvania
LOIS CAPPS, California               MARY BONO MACK, California
MICHAEL F. DOYLE, Pennsylvania       GREG WALDEN, Oregon
JANE HARMAN, California              LEE TERRY, Nebraska
TOM ALLEN, Maine                     MIKE ROGERS, Michigan
JANICE D. SCHAKOWSKY, Illinois       SUE WILKINS MYRICK, North Carolina
CHARLES A. GONZALEZ, Texas           JOHN SULLIVAN, Oklahoma
JAY INSLEE, Washington               TIM MURPHY, Pennsylvania
TAMMY BALDWIN, Wisconsin             MICHAEL C. BURGESS, Texas
MIKE ROSS, Arkansas                  MARSHA BLACKBURN, Tennessee
ANTHONY D. WEINER, New York          PHIL GINGREY, Georgia
JIM MATHESON, Utah                   STEVE SCALISE, Louisiana
G.K. BUTTERFIELD, North Carolina
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
BARON P. HILL, Indiana
DORIS O. MATSUI, California
DONNA M. CHRISTENSEN, Virgin 
    Islands
KATHY CASTOR, Florida
JOHN P. SARBANES, Maryland
CHRISTOPHER S. MURPHY, Connecticut
ZACHARY T. SPACE, Ohio
JERRY McNERNEY, California
BETTY SUTTON, Ohio
BRUCE L. BRALEY, Iowa
PETER WELCH, Vermont
              Subcommittee on Oversight and Investigations

                    BART STUPAK, Michigan, Chairman
BRUCE L. BRALEY, Iowa                GREG WALDEN, Oregon
  Vice Chairman                        Ranking Member
EDWARD J. MARKEY, Massachusetts      ED WHITFIELD, Kentucky
DIANA DeGETTE, Colorado              MIKE FERGUSON, New Jersey
MIKE DOYLE, Pennsylvania             TIM MURPHY, Pennsylvania
JANICE D. SCHAKOWSKY, Illinois       MICHAEL C. BURGESS, Texas
MIKE ROSS, Arkansas
DONNA M. CHRISTENSEN, Virgin 
    Islands
PETER WELCH, Vermont
GENE GREEN, Texas
BETTY SUTTON, Ohio
JOHN D. DINGELL, Michigan (ex 
    officio)

















                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Bart Stupak, a Representative in Congress from the State of 
  Michigan, opening statement....................................     1
Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, opening statement..............................     4
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................     5
Hon. Phil Gingrey, a Representative in Congress from the State of 
  Georgia, opening statement.....................................     7
Hon. Diana DeGette, a Representative in Congress from the State 
  of Colorado, opening statement.................................     8
    Prepared statement...........................................    10
Hon. Parker Griffith, a Representative in Congress from the State 
  of Alabama, opening statement..................................    12
Hon. Bruce L. Braley, a Representative in Congress from the State 
  of Iowa, opening statement.....................................    12
    Prepared statement...........................................    14
Hon. Gene Green, a Representative in Congress from the State of 
  Texas, opening statement.......................................    17
Hon. Edward J. Markey, a Representative in Congress from the 
  Commonwealth of Massachusetts, opening statement...............    18
Hon. Donna M. Christensen, a Representative in Congress from the 
  Virgin Islands, opening statement..............................    19
Hon. Betty Sutton, a Representative in Congress from the State of 
  Ohio, prepared statement.......................................    20
Hon. Peter Welch, a Representative in Congress from the State of 
  Vermont, opening statement.....................................    21
Hon. Janice D. Schakowsky, a Representative in Congress from the 
  State of Illinois, opening statement...........................    21
Hon. John D. Dingell, a Representative in Congress from the State 
  of Michigan, prepared statement................................   101
Hon. Baron P. Hill, a Representative in Congress from the State 
  of Indiana, prepared statement.................................   104

                               Witnesses

Jeremy Arnold, Los Angeles, California...........................    23
    Prepared statement...........................................    25
Julie Henriksen, Westchester, California.........................    27
    Prepared statement...........................................    29
Lauren Meister, West Hollywood, California.......................    31
    Prepared statement...........................................    33
Angela Braly, President and CEO, Wellpoint, Incorporated.........    54
    Prepared statement...........................................    57
Cynthia Miller, Executive Vice President, Chief Actuary and 
  Integration Management Officer, Wellpoint, Incorporated........    75
    Prepared statement \1\

                           Submitted Material

Letter of February 17, 2010, from Mr. Dingell to the National 
  Association of Insurance Commissioners.........................   106
    Letter of February 23, 2010, response from the National 
      Association of Insurance Commissioners to Mr. Dingell......   108

----------
\1\ Ms. Miller did not submit a prepared statement.

 
    PREMIUM INCREASES BY ANTHEM BLUE CROSS IN THE INDIVIDUAL HEALTH 
                            INSURANCE MARKET

                              ----------                              


                      WEDNESDAY, FEBRUARY 24, 2010

                  House of Representatives,
      Subcommittee on Oversight and Investigations,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:03 a.m., in 
Room 2123 of the Rayburn House Office Building, Hon. Bart 
Stupak [Chairman of the Subcommittee] presiding.
    Present: Representatives Stupak, Braley, Markey, DeGette, 
Schakowsky, Christensen, Welch, Green, Sutton, Waxman (ex 
officio), Capps, Eshoo, Hill, Burgess, Gingrey, and Griffith.
    Staff present: Phil Barnett, Staff Director; Kristin 
Amerling, Chief Counsel; Bruce Wolpe, Senior Advisor; Sarah 
Despres, Counsel; Purvee Kempf, Counsel; Naomi Seller, Counsel; 
Jack Ebeler, Senior Advisor on Health Policy; Stephen Cha, 
Professional Staff Member; Dave Leviss, Chief Oversight 
Counsel; Stacia Cardille, Counsel; Ali Golden, Professional 
Staff Member; Erika Smith, Professional Staff Member; Ali 
Neubauer, Special Assistant; Karen Lightfoot, Communications 
Director, Senior Policy Advisor; Elizabeth Letter, Special 
Assistant; Matt Eisenberg, Staff Assistant; Sean Hayes, 
Minority Counsel; Alan Slobodin, Chief Minority Counsel; Clay 
Alspach, Minority Counsel; and Garrett Golding, Minority 
Legislation Analyst.

  OPENING STATEMENT OF HON. BART STUPAK, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Stupak. This meeting will come to order. Today we have 
a hearing entitled ``Premium Increases by Anthem Blue Cross in 
the Individual Health Insurance Market.'' Before we begin, I 
ask unanimous consent that the contents of our supplemental 
memo be entered into the record. This supplemental report is in 
regards to our investigation in the small business health 
insurance market. We had a draft last night and I think it was 
just finalized today. And the company documents with that memo, 
there is a document binder I think we all have agreed on. So 
without objection, they will be entered into the record. I 
should also note for the record that members will be going back 
and forth 2 floors up. Consumer Protection and Trade 
Subcommittee is also having a hearing on telecommunications, 
which many of our members are members of both subcommittees, 
and they will be going back and forth for this hearing.
    Right now the chairman, ranking member and chairman 
emeritus will be recognized for 5-minute opening statement. 
Other members of the subcommittee will be recognized for a 3-
minute opening statement. I will begin. Today's hearing is the 
fifth hearing in this Congress that our subcommittee has 
examined questionable business practices in the private health 
insurance market. One of the hearings we had last year examined 
the problem of under insurance. We heard stories about ordinary 
citizens who thought they had sufficient health insurance but 
learned that their policies were inadequate when they needed 
them most.
    We also looked into the problem of small businesses 
purging, which is when a health insurance company raises 
premiums to a point it is unaffordable for businesses to 
continue their health coverage. Lastly, we held 2 hearings on 
rescissions, which is the private insurance industry practice 
of terminating coverage after a policy holder becomes sick so 
the company can avoid paying expensive and much needed health 
care. Our hearing today will focus on rate increases in the 
individual insurance market in California. We will examine what 
is happening when insurance companies have no limitation or 
accountabilities under rate increases. While most Americans 
receive health insurance through their employer in a group 
market or through government-assisted programs such as Medicare 
and Medicaid more than 15 million Americans receive their 
health insurance through the private individual market.
    The individual health insurance market is unique in that 
companies are limited in their ability to spread their risk 
among a larger population. While today's hearing will focus on 
WellPoint's proposed premium increase in California, this is a 
national problem. According to a disturbing report released 
today by the Center for American Progress WellPoint has 
implemented or proposed double digit rate increases in 11 of 
the 14 states in which they operate. In Maine, WellPoint raised 
individual rates by 23 percent this years after 5 straight 
years of double digit increases for individual policy holders 
in that state.
    Likewise, Indiana residents covered by certain WellPoint 
policies will endure a rate increase of 21 percent. In Georgia, 
WellPoint policy holders face a 21 percent increase in 2009 and 
are anticipating a similar rate increase again this year. And 
in the west, Colorado expects average rate increases in 
WellPoint policies of nearly 20 percent and as high as 24.5 
percent this year. But as residents of my home state know, the 
problem is not limited to WellPoint subscribers. Some Michigan 
policy holders are facing a proposed rate increase of 56 
percent in the individual market.
    On January 26 this year WellPoint sent out letters advising 
800,000 California policy holders of possible rate increases 
for the coming year. As it turns out, nearly 700,000 WellPoint 
subscribers received rate increases of as much as 39 percent. 
WellPoint has tried to justify their rate increases through a 
high profile media campaign reassuring policy holders, 
congressional leaders, and the Administration that the proposed 
rate increases are necessary due to rising medical costs and 
declining business resulting from economic difficulties, not 
from padding their bottom line.
    Through our investigation, we discovered internal documents 
that suggest a closer relationship between the proposed premium 
increases and WellPoint's profits. The documents reveal that 
WellPoint sought inflated premium increases as a negotiating 
tool with the California Department of Insurance. WellPoint 
also appears to be directing policy holders to less generous 
health insurance plans as a way to lower medical claims while 
awarding their executives excessive salaries and paying for 
lavish retreats. In our insurance rescission investigation last 
year, we learned that if an insurance company believes your 
illness may be costly, it will go back and re-examine your 
initial application to find an excuse to cancel your coverage.
    As health insurance industry executives brazenly told us 
this practice will continue until there is national health care 
reform to expressly prohibit it. In this case here, we are 
reminded of this sad fact. An internal WellPoint document tells 
us that the practice of rescission is a ``key issue'' for 
maintaining lower medical loss ratios. Our first panel will put 
a face on the frightening premium increases that have affected 
California. Lauren Meister received notice that WellPoint 
increased her rates by 38.6 percent. WellPoint offered her an 
alternative plan that does not cover the brand name medications 
she requires to treat a chronic condition.
    Julie Henriksen is a single mother with 2 children. 
WellPoint has proposed to raise her premiums by 30 percent. One 
of her 2 sons was born with a hole in his heart and required 
open heart surgery at age 3, and now requires annual care from 
a cardiologist. If Lauren switches to the alternative plan 
WellPoint has offered she will have to pay $5,000 out of pocket 
before her insurance even kicks in. Jeremy Arnold has 
experienced rate increases on his WellPoint policy totaling 74 
percent between 2009 and 2010. Anthem has proposed to increase 
his rates 38 percent this year. We will also be hearing from 
Angela Braly, the President and CEO of WellPoint. Accompanying 
her is Cynthia Smith, WellPoint's Executive Vice President and 
chief actuarial. I look forward to their testimony to help this 
committee understand why WellPoint made the decision to raise 
premiums this year by up to 39 percent.
    Tomorrow the White House will be holding a summit to 
discuss the President's newly released health care reform 
proposal. Included in this proposal is language granting the 
states the authority to regulate rate increases by private 
health insurers like WellPoint. This hearing could not come at 
a better time. It provides a frightful reminder that unless 
Congress and the Administration acts, Americans across the 
country will continue to experience large premium increases and 
will be priced out of the market. With limited or no health 
care coverage, we are all just one injury or illness away from 
bankruptcy. Next, I would yield to the gentleman from Texas, 
Mr. Burgess, and welcome him sitting officially as the ranking 
member now of the Oversight and Investigations Committee. I 
look forward to working with him throughout this Congress. And, 
Mr. Burgess, your opening statement, please.

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE 
              IN CONGRESS FROM THE STATE OF TEXAS

    Mr. Burgess. Thank you, Mr. Chairman. We will see if you 
still feel that way after a few months. I thank you and 
Chairman Waxman for allowing us to have this hearing today. I 
want to thank the witnesses who traveled far and wide to come 
and be with the committee today and to share their stories 
about the purchasers of health insurance and the people who 
provide health insurance. You know, it is odd, Mr. Chairman, 
you look around the room and you don't see the insurance 
commissioner of the State of California, which really strikes 
me as odd in a hearing of this nature. If the reason for this 
hearing is to determine whether a state insurance company has 
violated a state's regulations then you would think logically 
that the head of the state's regulatory agency would be present 
and be with us.
    But here today we have Anthem, WellPoint's California 
subsidiary, in a dispute with the California insurance 
commissioner. The evidence shows that Anthem submitted, as 
required, by California state requirements, their actuarial 
determinations as to why they needed to decrease premiums less 
than 20 percent as well as raise some premiums as high as 39 
percent. The evidence also shows that the California state 
insurance commissioner did nothing with the actuarial 
information they were given by Anthem. They did not raise a 
single complaint for over 4 months. Now why the federal 
government is involved in a state issue, a state dispute, to me 
presupposes that the fundamental difference between the line of 
thinking between national Democrats and national Republicans in 
the health care debate.
    The central argument of the Democratic Party is that we 
need a national single federal regulator oversee all health 
insurance companies but Republicans believe fundamentally that 
insurance is a state issue and based on risk pools how many 
people get sick at one time versus how many healthy people 
there are who won't get sick. So the actuaries look at the 
market place and determine this ratio. And, of course, we are 
involved right now in this tremendous, tumultuous health care 
debate or what used to be called a health care debate before 
the President renamed it health insurance reform, and that is 
why the timing of this hearing couldn't be more coincidental. 
And just for the record, I never attribute anything to 
coincidence if it can be adequately explained by conspiracy.
    Tomorrow, the President is holding a bipartisan photo-op on 
health insurance reform at the White House, a 6-hour photo-op, 
so it is a significant photo-op, and his Secretary of Health 
and Human Services has used the state-based issue, the increase 
of Anthem's in the State of California to increase support as 
another reason why we need a $1 trillion or $2 trillion health 
reform package. In fact, his Secretary of Health and Human 
Services has said that the profits of Anthem are outrageous, 
her words, and that the insurance companies should not make 
that much money. Why does profit matter if the actuaries have 
done their work?
    I will agree, a 39 percent premium is a huge number, a big, 
scary number but it may be irrelevant in this debate if the 
debate is on whether or not the business model of the insurance 
should be based on what the actuaries are determining is a risk 
spread. Now I make no apologies for the insurance companies. 
They are certainly capable of defending themselves, and, if 
not, then they deserve what they get but I think a GAO report 
needs to be commissioned to study how the insurance companies 
determine how much they are going to charge with their 
premiums, but if the numbers show that there will be a 
precipitous decline in the number of people who are in the risk 
pool then any number, no matter how big, may in fact turn out 
to be acceptable.
    So if we are just focused on solving a dispute between 
California and Anthem, whose actuary is right, now wouldn't 
that be a stimulating hearing? We could have dueling actuaries. 
If Anthem is right, their actuary portrayed an accurate risk 
for the State of California, or is the California Department of 
Insurance right to complain 4 months after the fact that Anthem 
is a bad insurance company. But, you know what, we are really 
not here to answer those questions. We are here to answer 
whether there needs to be reform in the health care industry as 
a whole. And I will tell you as a practicing physician for over 
25 years, there needs to be. Costs are a problem. Yet, after 
months and months of debate, we really haven't figured out how 
to answer the question of how do we bend the cost curve or 
actually we have figured out to bend it in the wrong direction.
    We haven't determined whether these costs are conclusively 
attributable to the business practices of health care 
providers, who are sometimes impugned, or the insurance, who 
are often impugned, or whether these costs are attributable to 
what the First Lady is focusing on, lifestyle choices, diet, 
exercise, and the epidemic of obesity. Or maybe it is just that 
people are living longer and the cost of treating an older 
generation were never envisioned when we created Medicare back 
in the '60s. And, of course, there is the advancing complexity 
of what we are able to do. The very fact that we have more than 
one cholesterol-lowering medication on the market is 
significant. What we can all agree on is there needs to be 
reforms in the health industry. Let us get rid of pre-existing 
conditions and lifetime caps. I am for that. Let us work on 
tort reform. How about increased competition? I could be for 
that.
    Increased flexibility and portability, who would be against 
that? How about some improvements for people who are stuck in 
the COBRA system so they are not stuck with such a high 
premium? I could be for that. But, you know, we are going to 
turn our attention to the President's summit tomorrow. I hope 
the President, I hope the President is truly interested in 
including good ideas regardless from which side of the dais 
they emanate. I will yield back the balance of my time.
    Mr. Stupak. Thank you, Mr. Burgess. Mr. Waxman, chairman of 
the full committee. Thanks for being here, and I look forward 
to your opening statement.

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Waxman. Chairman Stupak, thank you for convening this 
important and timely hearing. On February 4, the Los Angeles 
Times reported that Anthem Blue Cross, a subsidiary of 
WellPoint, intended to raise its rates as much as 39 percent 
for their 800,000 individual policy holders in California. And 
I want to single out Duke Helfon and Lisa Garrion, who are 
reporters who have done excellent work on this issue and 
brought to our attention the rescissions as well which has been 
a tactic used by those who cover individuals for insurance 
policies. By any measure, this was a breathtaking increase in 
health insurance costs. We are holding today's hearing to find 
out what is really driving these enormous rate increases.
    WellPoint says the rate increases are a result of medical 
inflation and healthier policy holders dropping coverage. But 
the thousands of pages of WellPoint documents we have reviewed 
tell another story. They tell a story not about costs but about 
profits, not about increasing coverage but about reducing 
benefits to policy holders, not about removing barriers to 
coverage but about erecting new ones, not about covering more 
people who have illnesses, but about cutting them off and 
seeking out new customers who are healthier and wealthier.
    The documents also tell a story of potential huge new 
premium rate increases still to come. WellPoint says that its 
rate increases have nothing to do with increasing company 
profits, but an internal company e-mail says that its rate 
increase would ``return California to target profit of 7 
percent.'' WellPoint says that its rate increases are 
absolutely necessary, but its internal company documents 
describe a plan to build in a cushion to allow for 
negotiations. The company told its board of directors that its 
average rate ask would be 25 percent but that its final rate 
increase would only be 20 percent. Other documents raised the 
possibility that WellPoint may have manipulated its actuarial 
assumptions to keep its medical loss ratio, a key measure 
reviewed by California regulators, flat.
    The documents we have reviewed show WellPoint is proposing 
its highest increases on its more generous plans, and at the 
same time it is actively developing new products called 
downgrade options that reduce benefits for its policy holders. 
As we will hear from the witnesses on our first panel, this 
purging process cuts coverage for WellPoint policy holders when 
they need it the most, when they get sick, and the WellPoint 
documents point to a future of even higher rate increases. 
WellPoint told committee staff that WellPoint voluntarily 
capped its maximum rate increase at 39 percent. Well, if 
WellPoint had not done this some policy holders could have 
faced rate increases of over 200 percent.
    Mr. Chairman, we have circulated a memorandum to members 
describing these documents, and I know they are now part of the 
record. One question we asked is where does all of this money 
go? We have learned that in 2008 WellPoint paid 39 senior 
executives over a million dollars cash each, and the company 
spent tens of millions of dollars more on expensive corporate 
retreats. During 2007 and 2008, WellPoint spent $27 million on 
103 executive retreats. One retreat in Scottsdale, Arizona cost 
over $3 million. Corporate executives at WellPoint are 
thriving, but its policy holders are paying the price. 
Ultimately, what this hearing will show is that the current 
system is absolutely unsustainable. If we fail to pass health 
reform, insurance rates will skyrocket and health insurance 
will become so expensive only the most healthy and the most 
wealthy will be able to afford coverage.
    Health insurers like WellPoint may get richer, but our 
nation's health will suffer. We cannot go down this road 
forever. It is breaking our middle class and it will bankrupt 
our nation. We will learn much from today's hearing, Mr. 
Chairman, and I hope we will apply these lessons when we meet 
at the White House tomorrow and in the days and weeks to come. 
We have got to reform the current health care system. 
Individual insurance seeks not to spread the cost but to 
exclude people from coverage so that they will not cost the 
insurance companies more money, and that is not insurance that 
is going to protect people who need it the most when they get 
sick. Thank you, Mr. Chairman.
    Mr. Stupak. Thank you, Mr. Waxman. Mr. Gingrey, for an 
opening statement, please, 3 minutes.

  OPENING STATEMENT OF HON. PHIL GINGREY, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF GEORGIA

    Mr. Gingrey. Thank you, Mr. Chairman. And, Mr. Chairman, I 
want to join with you and all of our colleagues in welcoming 
and congratulating my OB GYN colleague on our side of the aisle 
as the new ranking member of the subcommittee, and I 
congratulate Dr. Burgess. First off, these patients here today, 
they need reform, as do many patients who find it increasingly 
hard to afford health insurance or chronically ill patients who 
cannot find a policy because they are simply too sick to 
insure. The increases they receive especially in an economy 
like the one we are currently experiencing are tough to 
justify, and I would like to thank them for coming today and we 
look forward to your testimony.
    Throughout the past year, many in this Congress have seemed 
to operate in a bubble seemingly oblivious to the needs or the 
wants of their constituents because of ideological reasons. We 
started this Congress with the hope that we would work together 
to reform our health care system. What we ended up finding was 
a Congress more prone to closing doors than opening them 
creating special deals to, yes, buy Democratic votes instead of 
compromising to find Republican ones. I along with many of my 
colleagues continue to write the President and Democratic 
leadership offering my medical advice. Unfortunately, they have 
yet to respond.
    So whether it becomes a paycheck doesn't bring home enough 
money to afford it or our sickest patients cannot access it, 
every American should have quality health care. A majority of 
Americans, and an overwhelming majority of Congress strongly 
agree with that sentiment. Yet, here we sit without a health 
reform bill because Washington continues to pursue a bill that 
they cannot sell to the American people. The Obama plan is the 
same bill with a few minor changes, notably changes that favor 
unions, increase cuts to senior's health plans. If it was a 
popular bill, we would not be sitting here today. If it was a 
good bill, we would not be sitting here today.
    Mr. Chairman, the American people simply do not want the 
Obama plan. Every day that this Administration and this 
Congress spends in backroom meetings on the Obama plan is one 
day too many. I believe I can speak for every member of this 
committee when I say that we can fix the problems in our health 
care system. The only thing standing in the way of that goal is 
a simple, yet inconvenient truth, the plan President Obama and 
Democratic leaders want is not what the American people want. 
Mr. Chairman, I believe that the Democratic majority has a 
decision to make. If they truly want health care reform, they 
will need to get rid of the bill that Americans don't want. If 
they want bipartisan health reform, they will need to invite 
Republicans to work with them to help create legislation, not 
just invite them to review that has already been created and 
now, of course, plused up by another $100 billion.
    Inviting Republican leadership to a televised meeting at 
the Blair House while secret meetings on the Obama plan 
continue at the White House is not the change that the American 
people want or will accept. I look forward to the witnesses' 
testimony. And, Mr. Chairman, I will yield back as my time has 
expired.
    Mr. Stupak. Thank you, Mr. Gingrey. Ms. DeGette for opening 
statement, please, 3 minutes.

 OPENING STATEMENT OF HON. DIANA DeGETTE, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF COLORADO

    Ms. DeGette. Mr. Chairman, I will submit my opening 
statement for the record. But I want to say I am offended by 
some of the things that my colleague from Georgia just said, 
and the reason why I am offended by them, it is one thing for 
us to disagree about the content of a health care bill. It is 
another thing to disparage people's motives. Now there are a 
lot of motives to be disparaged on both sides of the aisle, but 
I will say every single member of this committee who has worked 
on this bill from Chairman Waxman to the ranking member to 
everybody else has worked hard on this bill. Now Mr. Gingrey 
and his colleagues may not like the bill that this committee 
passed, but they cannot deny that we spent hours of hearings in 
this committee and we spent hours of markups considering 
amendments from both sides. And if you don't like the bill, 
that is just fine. That is not a partisan problem. That is a 
problem of not liking the bill, and I understand that.
    But I would ask that Mr. Gingrey and everybody else just 
quit painting everybody with the same broad brush because if we 
ever hope to restore a spirit of comity to this committee and 
this Congress attacks like that should not be countenanced on 
either side of the aisle. I want to say one more thing. There 
really is a problem here that we are trying to deal with, and I 
don't think anybody in this room would disagree with that. As 
the chairman said, there are proposed rate increases by Anthem 
Blue Cross in California, in Michigan, in Connecticut, in 
Maine, in Oregon and Rhode Island, and 20 percent in my home 
state of Colorado. Now today on the floor they are going to 
have a bill repealing the antitrust exemptions of the McCarran-
Ferguson Act.
    Only 2 industries currently enjoy those exemptions, and 
that is the health care industry and major league baseball. I 
guess we can talk about major league baseball later this year. 
But if we want more competition, it would seem to me that this 
would be a good start, and I would hope my friends on both 
sides of the aisle would vote for this bill. In the meantime 
though to deny that there is a problem to say, well, you know, 
the insurance companies because medical costs are going up have 
to increase their premiums like this is denying the fact that 
my constituents and everybody in this room constituents cannot 
buy insurance policies on the individual market because they 
cannot afford to pay these rate increases.
    And I have people come to me every day and talk to me about 
this. Some of them are related to me, and I am sure everybody 
in this room has experienced those same issues. So, you know, 
my view--and I have worked with Mr. Gingrey. I have worked with 
everybody in this room. They know that I am not particularly a 
partisan person, that I try to work on these issues in a 
bipartisan way. So I would say on both sides of the aisle let 
us cut it out. If we don't like each other's bills, let us just 
debate against the bills. Let us stop disparaging their 
motives. And I yield back.
    [The prepared statement of Ms. DeGette follows:]


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    Mr. Gingrey. Mr. Chairman, since Ms. DeGette mentioned my 
name, can I have 30 seconds to respond?
    Mr. Stupak. No, let us move on. We are not going to go back 
and forth. We will have an opportunity later. Maybe Mr. 
Griffith can yield you some time, but yield now to Mr. Griffith 
for 3 minutes for an opening statement.

OPENING STATEMENT OF HON. PARKER GRIFFITH, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF ALABAMA

    Mr. Griffith. Thank you very much for the opportunity, and 
I certainly appreciate being here. The good news about health 
care reform is that everyone would like to see it happen. The 
discussion of how it might happen has certainly been ongoing 
and will continue to be ongoing. One of the bills that was 
passed this year that I think got not as much applause as it 
should have was the FDA's ability to control tobacco, a huge, 
life saving bill in and of itself. That in and of itself was 
health care reform, and I think Chairman Waxman needs to be 
proud of that. And I know as a cancer specialist, I am 
certainly proud of it.
    One quick comment is that in order to reform health care, 
we must understand we cannot reform it around a shortage, and 
the shortage are MDs. There is a difference between coverage 
and access. We have millions of Americans covered today who 
can't access health care because we don't have enough providers 
to take care of them. So if we gave everyone in America a 
little card that said USA health care our emergency rooms would 
still be just as busy as they are, just as crowded. We would 
still have just as much trouble getting our Medicare and 
Medicaid and our pediatric patients seen, and so any part of 
reform or improvement in health care must include a major 
increase in the number of medical schools, a major increase in 
the number of young men and women who are entering medical 
school, and we need to increase our mid-level providers, our 
nurse practitioners. We must increase their ability to see our 
chronically ill and do education.
    Half of all deaths in America over the next hundred years 
will be lifestyle-related. There will be smoking, overeating, 
not enough exercise, unrelated to infection or malignant 
disease. Thank you, Mr. Chairman.
    Mr. Stupak. Thank you, Mr. Griffith. And I should say 
welcome to the committee. It is your first time with us. 
Welcome to the committee. Next is Mr. Braley for an opening 
statement.

OPENING STATEMENT OF HON. BRUCE L. BRALEY, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF IOWA

    Mr. Braley. Thank you, Mr. Chairman. Even though the focus 
of this hearing is on rate increases by Anthem Blue Cross what 
we are really talking about is a problem that affects people 
all over this country because it is not a new problem and the 
point has been raised about health insurance reform versus 
health care reform. I have always stressed the need for 
comprehensive global health care reform, and we cannot afford 
as a country not to move forward with health care reform. Even 
though this hearing is focused on Anthem Blue Cross in the 
State of California, this very same issue is facing my 
constituents in Iowa. Last week, Well Mark Blue Cross/Blue 
Shield, the largest health insurer in Iowa, announced it would 
raise rates an average of 18 percent for Iowans who buy their 
own health insurance, and that is expected to affect about 
80,000 Iowans. Some of them will see their rates go up over 20 
percent.
    According to Well Mark, this is the largest annual increase 
since 2006 and the troubling rise in premiums comes on top of 
an average 9.3 percent increase for individual policy holders 
last year, and a 54 percent increase in rates for individuals 
over the past 5 years. So when asked about this, the company 
spokesman noted that this was not related to anything that we 
don't already deal with and blamed increase in chronic 
conditions such as obesity and knee and hip ailments as well as 
the price of prescription drugs and high tech medical imaging.
    And this is what is very fascinating. He also said the real 
way to make insurance more affordable is to lower health care 
costs and require everyone to have insurance, which is one of 
the very points that we have been struggling with in this 
debate over how we address the problem of providing access to 
health care coverage for millions of Americans. So I think 
Iowans want to know exactly why companies like Well Mark and 
WellPoint are raising rates on these individual plans and what 
factors went into their decisions because everyone who is 
affected by this deserves a detailed justification for the 
increases from their insurance companies. They deserve to know 
that their elected officials are working to ensure appropriate 
and adequate oversight and regulation of the insurance industry 
and working to ensure that they have access to quality 
affordable health care.
    That is why I believe this hearing is a good first start, 
but it is also one more example about why we need comprehensive 
health care reform in this country. All Americans deserve 
access to quality affordable health care coverage as soon as 
possible, and unless we look at all the contributing factors 
including unregulated high increases in health insurance 
premiums, which have been going on for decades in this country, 
we are never going to get at the root of the problem and that 
is why I look forward to the testimony of our witnesses. And I 
yield back.
    [The prepared statement of Mr. Braley follows:]


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    Mr. Stupak. Thank you, Mr. Braley. Mr. Green, for an 
opening statement, please.

   OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Green. Mr. Chairman, I want to thank you for holding 
this hearing today on the recent individual health insurance 
policy increases proposed by WellPoint and Anthem Blue Cross/
Blue Shield in California. Millions of Americans do not have 
insurance through their employers or through public programs 
and they turn to the individual insurance market to purchase an 
insurance policy. Individuals who purchase insurance through 
the individual market must go through sometimes a difficult 
application process and often they are denied coverage through 
pre-existing conditions. Even if they are approved for 
coverage, they cannot afford the premiums in the individual 
market. We do know that in tough economic times like these 
health individuals drop their coverage to save money because 
health premiums across the Board are too high, and because of 
this occurrence could reduce this risk pools so significantly 
that extreme premium increases are necessary for those 
individuals who want to maintain their individual policies.
    At least that is the explanation given by WellPoint 
President and CEO Angela Braly to HHS Secretary Sebelius when 
asked to explain skyrocketing premium increases in California. 
There are not enough healthy people in Anthem Blue Cross/Blue 
Shield individual market and 39 percent premium increase is 
necessary for Anthem to continue to provide coverage in that 
area. The data emerges from the National Association of 
Insurance Commissioners clearly showing that enrollment in 
Anthem BCBS in California increased from 583,967 individual 
policies at the end of 2008 to 627,082 individual policies at 
the end of the third quarter of 2009. That is an increase of 
over 7 percent in the individual market for Anthem in 
California alone, so a high rate increase because of reduced 
pool doesn't make sense.
    It appears to me that the insurance industry's dirty little 
secret drastically increasing individual policy rates without 
justification and running rough shod over consumers has finally 
been given the public attention it deserves. Companies and 
Anthem Blue Cross/Blue Shield has been trying to get away with 
these outrageous type increases in Michigan, Rhode Island, 
Washington, and Maine, just a few. Unfortunately, states like 
Texas have very little we can do to prevent these rate 
increases going into effect, and are often at the mercy of the 
insurance companies, and that is historically true in Texas. 
Today, we are finally telling the insurance industry that the 
party is over. You have been making astronomical profits in the 
individual market off the backs of the sick and working folks 
who don't have an option but to obtain health insurance, but in 
the individual market it has gone on too long.
    Both the House and Senate reform bills contain provisions 
to give state and HHS Secretary the ability to review health 
insurance premium increases and the President's proposal takes 
this one step further by creating oversight of insurance 
premiums at the federal level. If individuals continue and 
cannot afford health insurance they end up in the emergency 
room forcing the health care system and the taxpayer to pay for 
their expenses, yet the insurance companies continue to see 
increased profits while making it nearly impossible for 
individuals to gain access or to afford a policy.
    These hearings highlight we desperately need insurance 
reform and health insurance reform in our country. All 
individuals should have access to quality and affordable health 
insurance. And, Mr. Chairman, we are not seeing that in our 
country. Otherwise, insurance reform wouldn't be needed, but we 
know in my particular district 43 percent of my constituents 
who are working don't have insurance through employers so they 
don't have a group plan so they have to go to the individual 
market, and I yield back my time.
    Mr. Stupak. Mr. Markey, for an opening statement.

OPENING STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN 
        CONGRESS FROM THE COMMONWEALTH OF MASSACHUSETTS

    Mr. Markey. Thank you, Mr. Chairman, very much. Many people 
think that health insurance reform doesn't matter to them 
because they already have health insurance. Skyrocketing 
premiums and insurance company abuses, however, reveal a 
different story. Medical bills are the leading cause of 
personal bankruptcies in the United States today. In 2009, 60 
percent of all people who declared personal bankruptcy did so 
because of their medical bills, and 80 percent of those people 
actually had health insurance. They just weren't covered or 
what it was that ultimately came to become the disease that 
affected them or their family. People just discovered they 
weren't covered.
    It is appalling that over the coming weeks and months when 
many Americans sit down to pay their bills, they will open a 
letter from their health insurance company informing them that 
their premiums will increase by 14, 22 or even 39 percent. Last 
week, I spoke with a small retail business owner named Diane 
Otnesio from Woburn, Massachusetts in my district. She recently 
got a letter from her insurance company saying that her health 
insurance premium is jumping 32 percent from $494 per month to 
$652, and her husband had the same increase. So this is 
essentially a 30 percent increase, and she says to me 
personally my small business is struggling to survive and I am 
expected to pay an extra $158 for the same health plan. It is 
making an already difficult economic situation even worse.
    People like Ms. Otnesio are doing the right thing and 
faithfully paying their health insurance premiums, but it is 
becoming increasingly difficult when some insurance companies 
are jacking up premiums and experiencing huge profits. In the 
midst of this economic crisis, WellPoint, the parent company of 
Anthem Blue Cross, recorded a $2.3 billion increase in annual 
profits. That is a 91 percent increase compared to the company 
profits in 2008. Did that jump in profits mean that WellPoint 
covered more of their customers' medical costs? No. In fact, 
their contribution to medical expenses of their customers 
decreased by 1 percent. Did this rise in profits lead to an 
appropriate reduction in premiums? No. Anthem Blue Cross is 
considering raising individual health insurance premiums by as 
much as 39 percent.
    And, sadly, Anthem Blue Cross is not an isolate case. Last 
week, Health and Human Services Secretary Sebelius released a 
report showing that health insurance companies in 6 other 
states proposed outrageous increases in health insurance 
premiums. There could not be a more important hearing, Mr. 
Chairman. I thank you for having it. It goes right to the heart 
of the anxiety that millions of Americans all across our 
country are feeling right now as we sit here in this hearing 
room. Thank you.
    Mr. Stupak. Thank you, Mr. Markey. Ms. Christensen, for an 
opening statement, 3 minutes, please.

       OPENING STATEMENT OF HON. DONNA M. CHRISTENSEN, A 
       REPRESENTATIVE IN CONGRESS FROM THE VIRGIN ISLANDS

    Mrs. Christensen. Thank you, Mr. Chairman. Amid the reports 
of record breaking profits in the insurance industry almost 3 
million more people in this country lost their coverage. So I 
want to thank you, Chairman Stupak and Ranking Member Burgess, 
for having this oversight hearing on what proposes to be an 
extreme increase in insurance premiums. This morning, we are 
looking at what is happening in California but premium 
increases every year, year after year, are hurting American 
families and increasing the ranks of the uninsured, exactly the 
opposite direction this country ought to be moving in. Over the 
years, I have worked with WellPoint, and I applaud the work 
that they have done in diversity and wellness programs and 
other areas, but I am alarmed by the proposed 39 percent 
increase in premiums.
    Despite the reasons that they offer, I do not see that they 
support the need for these premium increases, and I cannot 
support them. WellPoint is among the big 5 who enjoyed a 
combined profit of $12.2 billion last year. I don't grudge them 
the profits. They are in the business to achieve profits, but 
ordinary folks, your clients and others, are having to make 
unsustainable sacrifices to keep health insurance and to make 
ends meet. I cannot see why keeping the premiums where they 
are, having been raised about 20 percent last year, would be an 
even comparable sacrifice for WellPoint or its shareholders 
because as I see it they would still realize substantial 
profits.
    We welcome WellPoint's support for health care reform. 
Indeed, in a very real way this Congress' failure to pass 
meaningful legislation such as we passed in this committee last 
year is a major part of the problem we are discussing today. It 
is time for our Republican colleagues to stop blocking what we 
and the other committees passed at the long hearings and 
markups and which everyone was involved. So anyone who goes to 
the White House tomorrow without a determination to insure 
everyone, to provide equitable health care to everyone, 
including those living in the territories, and reduce health 
care costs should get out of the way and let others who will do 
what has to be done sit in their chair.
    If there is anything that WellPoint and those of us on this 
side of the dais can agree on, it is that we might not be here 
having this hearing today if the President had signed the kind 
of legislation this House passed last year. I want to welcome 
those who are here to testify this morning, both the customers 
of WellPoint and the officials of WellPoint, and I look forward 
to your testimony.
    Mr. Stupak. Thank you. Mr. Welch, for an opening statement. 
He stepped out. Ms. Sutton, opening statement.

  OPENING STATEMENT OF HON. BETTY SUTTON, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF OHIO

    Ms. Sutton. Thank you, Mr. Chairman. Thanks for holding 
this hearing today. I would like to be able to say that I am 
shocked that we are talking about this, but sadly I am not. 
While I understand that this hearing focuses primarily on 
Anthem Blue Cross in the California market unfortunately as we 
heard here the situation is not unique. Across this country 
millions of Americans, affecting both individuals and 
businesses, are being devastated by shocking increases in their 
health insurance premiums. And let us be clear, health 
insurance companies have been socking it to the American people 
and businesses for years. Health Care for America Now recently 
released a report that found that in 2009 the health insurance 
industry had record profits.
    Let us just think about that. In 2009, a year when the 
average American family suffered unlike any year in recent 
history, health insurance companies still had record profits. 
And according to the report the 5 biggest for-profit health 
insurance plans had combined profits of $12.2 billion in 2009, 
up 56 percent from the year before. According to a Health and 
Human Services report, over the last 9 years profits at the 
largest insurance companies increased 10 times faster than 
inflation, and over the last decade the amount private 
insurance companies spend on administrative costs, 
administrative costs, instead of paying claims and covering 
care, the amount that they spent on administrative costs grew 
faster than the amount they spent on prescription drugs as 
well.
    Premiums continue to skyrocket but consumers don't receive 
additional benefits or care. These increased premiums mean 
families have to make untenable choices. They are forced to sit 
down and weigh their chances of getting cancer or getting hit 
by a bus against having to pay an insurance premium that is now 
suddenly 30 percent higher, sometimes higher than their 
mortgage. Choosing to pay the higher premium means they may not 
be able to pay their heating bill or other basic life 
necessities or send their children to college, or sometimes it 
means choosing, if you can even call it a choice, to not have 
health insurance. This is not a situation that should occur in 
the United States of America.
    And this why we have heard a lot about health care reform. 
The Affordable Health Care for America Act that was passed by 
the House contained an 85 percent medical loss ratio, which 
would require insurance companies like Anthem Blue Cross, 
WellPoint, to be held accountable to consumers when they do not 
spend enough of their premium revenue on actual health 
benefits. The days of health insurance companies putting 
profits before people need to be over. I am sad that we are 
sitting here to discuss this today but the American people, 
they need answers, and it is time for WellPoint to explain why 
they are raising premiums in this way, especially right now. 
And I yield back.
    Mr. Stupak. Thank you. Mr. Welch is here. Opening 
statement.

  OPENING STATEMENT OF HON. PETER WELCH, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF VERMONT

    Mr. Welch. Thank you, Mr. Chairman. These premium increase 
requests really are just the latest effort on the part of the 
insurance industry to preserve and protect its business model, 
and it is a business model that served them extremely well with 
record profits and record salaries but has imposed real harsh 
consequences on individuals in America and our businesses that 
are trying to provide health care to their citizens. It is not 
sustainable. There is nothing really to talk about. How 
possibly can a family or a business cope with an envelope that 
arrives telling them that the cost of health care is going to 
increase 40 percent. And Anthem, WellPoint, always has an 
excuse, always has an explanation, that is ``the cost of health 
care.'' But essentially what the insurance industry has done, 
unfortunately, with a good degree of success, is block any 
systemic reform which this country needs in order to have a 
health care system that is affordable and accessible.
    It is pretty astonishing when you look at what the premium 
increases has been, 26 percent between 2003 and 2008 for single 
policies, 33 percent for family policies. The 10 largest health 
insurers saw their profits balloon from $2.4 billion to $13 
billion in 2007. And as the member from Ohio was saying, the 
amount paid to health providers has gone from 95 percent in 
some cases to 74 percent. That has enabled some companies to 
pay executive salaries in the range of $24 million. In my own 
small state of Vermont when the CEO of Blue Cross left, he got 
a $7.2 million golden parachute. That came out of rate 
increases. It came out of businesses that were struggling with 
the decision about whether they were going to cut workers or 
cut their benefits, a decision our employers don't want to 
make.
    So if I have a complaint about the insurance industry, it 
is not the individual rate increases. It is the consistent 
effort to stand in the way of health care reform so that the 
folks in this country, the businesses in this country, can have 
some confidence that they are going to get affordable and 
accessible health care. Health care is not about being in 
service of the insurance industry. The insurance industry 
should be about being in the service of helping us have access 
to health care. I yield back. Thank you, Mr. Chairman.
    Mr. Stupak. Thank you, Mr. Welch. Last, but not least, Ms. 
Schakowsky, opening statement, please.

       OPENING STATEMENT OF HON. JANICE D. SCHAKOWSKY, A 
     REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

    Ms. Schakowsky. Thank you, Mr. Chairman. When I saw the 
latest stories out of California about Anthem Blue Cross' 
decision to raise rates, I knew, my constituents knew, this is 
not an isolated incident. It is just the most recent example of 
what the insurance companies are doing to policy holders across 
the country. This committee has known for some time that 
arbitrary rate increases are a real threat to health access. 
Last summer, 12 of my colleagues and I successfully offered an 
amendment to the health reform bill to prevent excessive 
premium hikes like the one we now see from Anthem. We passed 
legislation requiring prior approval of large rate increases. 
And I am glad the President has now called for strong rate 
review regulation in his proposal for comprehensive reform, and 
I look forward to ensuring that what started as an amendment in 
this committee becomes law.
    I have heard from my constituents in my district asking 
that we not limit our investigation to California or to Anthem. 
They have sent me policy statements and renewal notifications 
highlighting years of high premiums. They have described the 
tough choices they have had to make, agreeing to high 
deductibles in an effort to maintain coverage, and yet the 
increases keep coming and coming. Illinois, like 25 other 
states, does not require prior rate approval of premium 
increases, and there is no authority to reject or deny 
excessive rate increases. So my constituents are turning to me, 
to Congress, to act to protect them.
    In addition to those stories, I have heard cases from my 
district showing that these trends are not confined to the 
individual market. From a community health center in my 
district in the process of renewing their Blue Cross/Blue 
Shield group policy, they are looking at an across the board 
double digit premium hike this year, and they are being forced 
to pay higher co-pays for things like emergency room visits or 
to see a specialist. Congress has taken repeated action to 
increase funding for community health centers. That money was 
intended to provide quality access to health care for our most 
vulnerable populations, not to pay insurance company premium 
hikes.
    Families are forced to make extremely tough choices when 
faced with an unexpected 39 percent increase in their budget 
and their personal stories only emphasize the need for 
comprehensive health reform that brings greater access and 
affordability to our health care system. I would like to close 
by thanking the witnesses for their participation in today's 
hearing and look forward to their testimony. I yield back.
    Mr. Stupak. Thank you. That concludes the opening 
statements from all members of the subcommittee. I should note, 
and I appreciate the fact, that Ms. Eshoo from California is 
here, and I am sure when we get to questions she will probably 
have a question or two. And Ms. Capps was also here, who just 
had to step out. As I said, we have two hearings going, one on 
the third floor and one here, and members are going back and 
forth. But members of the full committee of the Energy and 
Commerce Committee who may not be a member of this subcommittee 
will be allowed to ask questions at a later time of witnesses. 
So that concludes the opening statement by members of the 
subcommittee.
    We have our first panel of witnesses before us. They are 
Lauren Meister, who is from West Hollywood, California, Ms. 
Julie Henriksen, who is from Los Angeles, California; and Mr. 
Jeremy Arnold, who is also from Los Angeles, California. It is 
the policy of this subcommittee to take all testimony under 
oath. Please be advised by the rules of the House that you are 
allowed to be advised by counsel during your testimony. Do you 
wish to be represented or advised by counsel during your 
testimony, any of our witnesses? All shaking their heads no, so 
we will take that as a no. Therefore, I am going to ask you to 
please rise and raise you right hand and take the oath.
    [Witnesses sworn.]
    Mr. Stupak. Let the record reflect that the witnesses have 
replied in the affirmative. They are now under oath and they 
will begin with an opening statement. I would ask Mr. Arnold if 
you would not mind going first. Pull that mike up, press a 
button, the green light should go on, and you need to keep that 
mike fairly close to your voice in order to project your voice. 
Begin, please.

  TESTIMONY OF JEREMY ARNOLD, LOS ANGELES, CALIFORNIA; JULIE 
 HENRIKSEN, WESTCHESTER, CALIFORNIA; AND LAUREN MEISTER, WEST 
                     HOLLYWOOD, CALIFORNIA

                   TESTIMONY OF JEREMY ARNOLD

    Mr. Arnold. Thank you. Good morning, Mr. Chairman, and 
members of the committee. I am an Anthem Blue Cross policy 
holder, who has been directly impacted by Anthem's astonishing 
proposed rate increases in California. Because I work as a 
self-employed writer and also have an additional part-time job, 
I have had to purchase individual health insurance. Two weeks 
ago, Anthem informed me that the premiums on my rate plan PPO 
40 policy were going up 38 percent from $231 to $319 a month. 
This follows an increase exactly 1 year ago of 26 percent when 
my rates went up from 183 to 231 a month. In other words, my 
premiums are poised to rise to a level that is a whopping 74 
percent higher than barely over a year ago.
    This is outrageous. My benefits have not improved in any 
way, and I don't go to the doctor that often. Last year, I went 
a handful of times and paid about $1,250 in medical bills. As 
per the terms of my policy, Anthem paid a balance of about 
$1,600 in claims, far below the $2,700 in premiums I paid 
Anthem. I did also take prescription drugs, including a generic 
and a brand name medication, to manage high cholesterol and 
blood pressure related to a mild heart condition that I 
developed after I joined Anthem. Those 2009 drug costs were 
subject to a separate $500 brand name deductible.
    In its notice to me last month, Anthem offered to switch me 
to a plan with a lower increase in premiums, but one which does 
not include brand name drug coverage. That is unacceptable to 
me since I need that coverage to treat my condition. There are 
other Anthem plans I could try to switch to. Some of these 
require underwriting in which case my pre-existing condition 
would probably make me ineligible. Some don't require 
underwriting but carry high deductibles, lower lifetime 
maximums, and very poor prescription drug coverage. If Anthem 
goes ahead with its desired rate increase, I will not only be 
driven to one of these high deductible policies, I will have to 
hope that I don't get sick or injured. Hope is not an effective 
health care policy and hope is not what Anthem is supposed to 
be selling. I eat right. I exercise. I take care of myself. I 
am generally a healthy person and I resent being squeezed in 
this way.
    Anthem tries to justify these rate hikes by citing rising 
medical costs. This is disingenuous. If insurance companies 
believe that medical costs are out of control, they should 
fight them rather than simply passing them off to ordinary 
Americans. Anthem and WellPoint's recent astronomical profits 
are repellants because they are at the expense of breaking the 
backs of people like me. I have no problem with corporate 
profit making, but I do have a problem with profiteering, 
especially when it is at a level that penetrates so far into 
the economic and social well-being of our country that we 
Americans are discouraged from pursuing dreams and starting 
businesses and are stuck in undesired jobs simply because we 
worry about losing our health insurance or being able to afford 
it for our employees.
    This is wrong. It is insane, and it must be fixed by doing 
whatever it takes to pass meaningful health reform now. It 
would be simplistic to think that Anthem's corporate greed is 
the only problem here though it is a huge one that I believe 
requires stringent regulation. Sharing the blame are indeed 
hospitals and doctors raising rates far above what is 
defensible, and a legislature that is too beholding to special 
interests and consumed with partisan rhetoric to take necessary 
action. All these parties feed off each other to conveniently 
and happily line their own pockets or win elections while 
blaming the other side and caring not a wit about the rest of 
it.
    In conclusion, I want to say to Anthem and the insurance 
companies, including WellPoint President Angela Braly, to 
hospitals and medical providers, and to legislators on both 
sides of the aisle, I ask you all in words that are as true 
today as they were in 1953 when Joseph Welch first said them, 
have you no sense of decency at long last, have you left no 
sense of decency? Thank you.
    [The prepared statement of Mr. Arnold follows:]


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    Mr. Stupak. Thank you, Mr. Arnold. Ms. Henriksen, your 
opening statement, please.

                  TESTIMONY OF JULIE HENRIKSEN

    Ms. Henriksen. Good morning, Chairman Stupak, Chairman 
Waxman and members of the committee. I first would like to say 
that I am honored and more so extremely encouraged with the 
invitation to come before the subcommittee to present my real 
life situation regarding the most recent premium increase of my 
Anthem Blue Cross individual health insurance policy. The new 
found urgency and the spirit of determination with which these 
hearings are taking place give me a tremendous amount of hope 
that the issue of health care reform is going to remain an 
enormous focus of attention until a solution is found 
satisfactory to all. A little about myself and my particular 
case. I am 54 years old. I have two teenage sons, Keaton, who 
just turned 18 years old and is heading to college next year, 
and Britton, who is 16 years old and a junior in high school. I 
am self-employed as a consultant in the field of architecture 
and interior design, specializing in hotel design.
    I have worked continuously in this field for approximately 
27 years now. I make fairly good money, and both my boys attend 
private school. I have held a Blue Cross individual family 
policy since owning my own small business. My current policy is 
called a PPO share plan designated with a $1,500 deductible. My 
monthly premium is $1,042 covering the three of us. Dated 
January 26, I received a letter with a booklet attached stating 
that on March 1 of this year, my monthly premium would be 
raised to $1,352 for the same policy. This is an increase of 
$310 per month or a 29.8 percent increase.
    Just to clarify, my current policy states that I must meet 
an annual $1,500 deductible for each two members of my family 
which totals 3,000, and an annual out-of-pocket expense of 
4,500 for two members of my family, which totals 9,000 in 
addition to the yearly premium of $12,504 that I pay already. I 
have to tell you that we have never even met the deductible 
each year. All three of us are very, very lucky to be very 
healthy. But what is most concerning to me is that I am held 
captive in this policy since my younger son, Britton, was born 
with a heart condition. Not discovered until age 3, he was born 
with a small hole in his heart about the size of a dime between 
his right and left atrium.
    In addition, he has a condition called a cleft mitral 
valve, which means that the flap that opens and closes to allow 
blood to flow from the atrium to the rest of the body does not 
shut properly. Rather it swings back into the atrium and in so 
doing allows a small amount of blood to flow back into the 
heart with each beat. He had surgery when he was 3-1/2 years 
old, which repaired the hole in his heart. At the same time the 
mitral valve was corrected to the extent that it is 
characterized as a mild leak. The flap of the valve needs to 
move back and forth so it can only be cinched so far to correct 
a leak. He is seen by a pediatric cardiologist once a year for 
an ultrasound and an echocardiogram just to make sure that the 
leak has not changed from mild to moderate or severe. He is 
extremely healthy and is in no way hindered with any symptoms 
or restrictions when it comes to sports exercise. In fact, he 
is on his school's tennis team and has played sports of all 
kinds all his life.
    The reason that I am held captive, so to speak, is because 
he has in insurance terms a pre-existing condition. Sadly, I am 
allowed the so-called privilege of staying with Anthem Blue 
Cross and paying exorbitantly unreasonable premium hikes each 
year until I can't pay them anymore. In the same written notice 
by Anthem, I was offered a downgrade to my policy to an annual 
$2,500 deductible for each member with a 5,000 annual out-of-
pocket amount for each member at a cost of 1,089 per month, an 
additional increase of $47 to my current 1,042. I am allowed to 
downgrade until the term change in policy takes place and then 
involves the active underwriting, which I do not want to 
happen.
    I should note here that if I were to accept this new 
monthly premium of $1,352, thereby retaining my same current 
policy, this amount would be shy just $92 of my monthly home 
mortgage payment, which I refinanced this past summer. What 
worries me most is what will it be like for my son when he is 
22 years of age, and I am no longer able to claim him as a 
dependent on my taxes. Will he be excluded from any kind of 
policy because of his unforeseen heart condition when he was 
born?
    I must tell you that I have never written to any government 
officials or office before this, and though my letter, just 
another amongst many in the storm of shock and outcry about 
Anthem's premium increases, but I felt so compelled to do so 
for the very reason stated above, and the fact that in this 
economically depressed environment, I find the act of Anthem 
Blue Cross raising premium costs to individual policy holders 
for such high amounts truly unconscionable. Not to make light 
of the situation, but if I were to send out a letter today in 
my industry stating that I was raising my hourly consultant 
rate by almost 30 percent, I would not be working.
    To conclude, I find that even with all the disagreements in 
Congress regarding the latest health care reform proposals 
amazingly, I really still do have a positive outlook that our 
government officials can come up with a workable solution to 
the obvious and urgent need to change the direction of the 
health care in this country. I thank you for the opportunity to 
be heard.
    [The prepared statement of Ms. Henriksen follows:]


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    Mr. Stupak. Thank you. Ms. Meister.

                  TESTIMONY OF LAUREN MEISTER

    Ms. Meister. Good morning. Lauren Meister, West Hollywood. 
Thank you for inviting me to speak today. I have been an 
individual plan member of Blue Cross of California, now Anthem, 
for over 17 years. I have always dealt with the company 
directly, not through an agent. Like many people, in 2008 my 
income dropped substantially. I was paying a $500 monthly 
premium for Anthem's PPO 500 plan. I called Anthem in December 
of '08 to see what other less expensive plans were available. I 
expected the plan would have a higher deductible or co-pay but 
would still have the basic necessary coverage.
    The Anthem rep was aware of my budget, my medical history 
and age. I was turning 49. She recommended Anthem's PPO 1500 
plan, which was about $1,000 less per year, so I switched. Just 
a few months later, I received a notice from James Oatman, VP 
and General Manager of Anthem Blue Cross Individual that rates 
for the PPO 1500 plan were being increased on March of '09, and 
that the new monthly premium would be 528, even higher than 
what I had been paying for the PPO 500 plan but with less 
coverage. I paid the new premium until I spoke with friends 
about their plans. In October, I called Anthem again and asked 
them how the PPO 40 plan with Brand RX coverage differed from 
the PPO 1500 plan, which they had recommended to me in '08.
    I was told by this Anthem rep that the PPO 40 plan had a 
lower monthly premium, no deductible and higher co-pay, but the 
main difference was it did not cover maternity, which at 49 I 
probably didn't need anyway, so I switched plans again. At 49, 
I had been paying for maternity coverage, a costly, unnecessary 
benefit. I thought Anthem execs should know, so I wrote a 
letter to James Oatman, and I copied Ms. Angela Brawley, Ben 
Singer, Director of PR for Anthem Blue Cross of California, as 
well as Senator Boxer and Congressman Waxman. The only response 
I received was from Congressman Waxman. In January, 2010, James 
Oatman finally did send me a letter but this was to inform me 
that my rates were being raised once again from 373 to 516 per 
month, an increase of 38 percent.
    The letter noted that I would also have the option to 
change to PPO 40 plan with generic RX coverage only. This 
alternate plan would increase my premium by only 16 percent as 
if the 16 percent increase was a great savings. I have allergy 
asthma and I take brand prescriptions Accolate, Aerobid and 
Symbicort. Symbicort is fairly new. Accolate will not be 
generic until probably 2011. Hopefully, I can hold my breath 
until then literally. For the record, with the proper 
medication my breathing capacity is nearly 100 percent, but 
without the proper medication, I may end up needing more health 
care services, which ultimately will increase medical costs for 
both me and my provider.
    Pre-existing conditions such as asthma limit one's chances 
of being able to switch to a different health care provider, 
particularly if the goal is to lower the cost of the premium 
and still maintain coverage. This is only one of many reasons 
why we need health care reform. I read that Anthem's 
explanation for increasing rates by up to 39 percent was rising 
medical costs. In one respect, Anthem is right. It shouldn't 
cost $20 for a hospital to administer an aspirin, but then 
Anthem's executive salaries and stockholders do not appear to 
be suffering, and how much money goes to lobbyists trying to 
prevent health care reform, the same reform that Anthem 
indicates is necessary to keep health care costs from rising.
    My issue with Anthem is shared by many and is just a 
symptom of a broken system. We have a system where prevention 
and wellness are not encouraged nor embraced. For example, 
because I was turning 50, my doctor prescribed a bone density 
test for baseline measurement. Anthem Blue Cross did not cover 
one nickel of the test even though that test could determine if 
I had a propensity for osteoporosis. Penny wise, pound foolish. 
It is obvious. The health care industry needs to be regulated. 
We saw what the regulation did to the cost of utilities in 
California. We saw what the lack of regulation has done on a 
global level to our financial and banking systems. Well, it is 
having the same effect on our health care system.
    If the City of West Hollywood where I live can regulate how 
much landlords can raise the rent each year to keep rents 
stabilized, why can't the federal government regulate how much 
insurance companies can raise their rates per year in order to 
stabilize premiums. I believe that we should all be able to buy 
health care coverage. If someone can afford to pay for private 
insurance, great, but, if not, there has got to be a public, 
not-for-profit alternative without having to move to Canada, 
England or France. Some representatives from Congress have 
stated that we don't need a public option. I say to them I just 
want what you have, nothing more and nothing less. To me, 
insurance is like marriage. You expect the insurer to be with 
you in sickness and in health. That is why we buy insurance.
    If the insurer can't live up to this expectation then 
perhaps they need to get out of the business of insuring. I 
also want to just reply that I am an American, and I support 
Obama's health plan, and I just wanted to make that clear. 
Thank you.
    [The prepared statement of Ms. Meister follows:]


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    Mr. Stupak. Thank you, and thank you all for your testimony 
and for coming here today. We are going to start with 
questions. We will start with the chairman of the full 
committee, Mr. Waxman, for questions, please.
    Mr. Waxman. Thank you very much. I appreciate the testimony 
each of you has given. Ms. Meister, you indicated you are a 
constituent. I don't know if the other two witnesses are also 
constituents because you are from LA . I do know that WellPoint 
is a constituent of mine as well. And I want to do what is 
right for all my constituents, but it is not right to have 
insurance companies deal with ever increasing costs by shifting 
those costs onto the beneficiaries, their customers, because 
that is what they are doing. If you have a brand name drug, 
they won't cover it. You have to pay for it if you want it. If 
you want insurance, they figure out a way to increase your 
rates to keep the policy you already have. This is the problem 
with individual insurance.
    What we have as federal employees is we can choose between 
a number of different plans and they can't turn us down and 
they can't charge us more if we have pre-existing medical 
conditions. We get coverage because the costs are spread among 
all the insured. That is true of federal employees, members of 
Congress, for a lot of people that work for large employers 
that provide coverage, but the 3 of you are not in that 
situation. You have your own business. You have part-time jobs. 
You have your own activities, so you have to go in the 
individual market. Those are the people for the most part who 
don't have insurance coverage because they can't afford it, and 
it looks like you may not have insurance coverage yourselves if 
you don't pay these increased rates or they give you another 
alternative.
    WellPoint lets you go into another plan that costs more and 
covers less. What a deal. It doesn't hold down the cost of 
care. It simply makes you have to pay more of it, but that is 
not what you want from insurance. You want insurance to cover 
at least their share of the cost, and you would also like them 
to negotiate better prices to hold down health care costs 
overall. I don't see any evidence of holding down costs except 
shifting them on to you. Let us look at this situation that you 
are facing.
    Ms. Meister, you talked about your current plan. You have a 
PPO. You have to pay a percentage of your medical costs and you 
use a brand name drug as well as generic medications after you 
meet your deductible. Is that a correct statement of the plan 
you have generally?
    Ms. Meister. Yes, and the brand drugs only come--they don't 
come in generic.
    Mr. Waxman. So you can't get a generic for those where you 
need the brand name drugs. You told us in your opening 
statement you take your medication to treat chronic asthma. 
These are not in generic form, so if you go along with what you 
are being told by Anthem, you would have to switch to a plan 
with inferior coverage or attempt to pay the higher monthly 
premium. That is the way they have got you in the squeeze, 
isn't it?
    Ms. Meister. That is correct.
    Mr. Waxman. Have you decided what you are going to do?
    Ms. Meister. I have decided that I am going to take the 
lower coverage with the generic brand and I will pay out of 
pocket for the brand medication.
    Mr. Waxman. And, Mr. Arnold, you have the same health 
insurance plan as Ms. Meister, and they propose to increase 
your cost by 38 percent as well, or you can switch to a plan 
that covers generic medications only, is that right?
    Mr. Arnold. That is correct, or I could switch to a plan 
that also covers brand name but one that has a much higher 
deductible over all.
    Mr. Waxman. And faced with this kind of a problem, you have 
got a terrible choice to make. Have you decided what choice you 
are going to make?
    Mr. Arnold. At the moment, I am in a wait and see attitude 
because I know that these proposed increases have been put on 
hold until May 1, but if nothing changes I will probably switch 
to one of the very high deductible policies.
    Mr. Waxman. And they would be very happy because they is 
what they would like you to do. Then you would just have to pay 
more of your costs. Mr. Chairman, these witnesses made clear 
that the alternative plans Anthem is offering to its policy 
holders provide dramatically less coverage for marginally less 
money, and if the only option available to consumers in the 
individual market is to pay outrageous monthly premiums or 
switch to a plan that doesn't meet their needs, then it is 
another example of why we need reforms in the individual 
market. All of us here will say we care about this. We want to 
have insurance reforms. That is what we are told.
    But you can't reform the insurance system without providing 
some standard policy so you can compare policies. You have such 
arbitrariness in the kinds of policies that you have available 
to you, and you can't really figure out what your needs are 
because from year to year it changes and it goes up. What we 
need is for insurance companies to have to provide insurance 
for everybody and spread those costs, and to do that we have to 
make sure that everybody is covered, and to make sure that 
everybody is covered we have to help people who can't afford 
their coverage, and we have to tell the insurance companies 
they can't deny you that coverage.
    That is where we find our differences as we try to deal 
with health reform. We have got to deal with the problem in a 
broader way than say, oh, let us do away with pre-existing 
conditions where the Republican proposal doesn't even do that. 
They would put people with pre-existing conditions in a special 
group where they would pay higher premiums and they would be 
treated differently. We have got to standardize insurance and 
make sure that people have access to it. That is what President 
Obama has been trying to do.
    We are going to go to a summit tomorrow that the President 
has called for the Democrats and Republicans. I hope we can 
work on this in a bipartisan basis. This shouldn't be a 
Democratic or Republican issue, but we will see tomorrow 
whether we can look for common ground rather than hear the 
accusations back and forth that we want to socialize medicine 
or we are going to create death panels or we are cutting back 
on people and the elderly, and then yet we find lack of 
cooperation to find a solution to this intractable problem. I 
hope we don't let another opportunity go by and wait another 15 
years before we tackle the problem again. You can't afford it, 
and the American people can't afford it either. Thank you, Mr. 
Chairman.
    Mr. Stupak. Mr. Burgess for questions, please, 5 minutes.
    Mr. Burgess. Thank you, Mr. Chairman. In the interest of 
bipartisanship and comity, I feel that I need to respond to 
some of the lectures that we have been getting this morning. 
Mr. Chairman, and referring to Mr. Waxman as the chairman of 
the full committee, I would be offended as chairman of the 
committee if the committee passes a bill and the Senate passes 
this bill I didn't like, but fair enough, the Senate passes a 
bill, a bill I didn't like that was starkly different from this 
committee's bill, but nevertheless they did what they intended 
to do, and then the proper process is for the two sides to get 
together, House and Senate, I am talking about, not Republicans 
and Democrats, but the House and Senate to get together and 
reconcile the differences in what is called a conference 
report, and this is part of our normal procedure.
    But now we have a situation where the White House 
functioned as the conference with no input that I am aware of 
from yourself or Mr. Stupak or Mr. Rangel or Mr. Miller as 
chairman of the Education and Work Force Committee, the White 
House put together this conference report and now we will be 
required at some point to vote on that and deal with it through 
a process called reconciliation which is a little arcane, but 
it means you don't have to have quite so many supporters to get 
this done. And if the American people were behind what we were 
doing, it wouldn't be this difficult.
    Now you can look at polls however you want, but 60 percent 
of the American people don't like what we are doing. Twenty 
percent of the people are in favor of Congress generally and 45 
percent of the people are in favor of the President, so with 
these sorts of numbers it is difficult to do something this 
massive in the form of restructuring. Now just another issue 
that you made. You brought up the federal employee health 
benefits plan. It is employer-sponsored insurance so it doesn't 
exactly translate to what we are talking about here today, but 
had we worked more on making the individual market look more 
like the ARISA protected market under employer-sponsored 
insurance the multi-state corporations that provide insurance 
to their employees across the country that aren't holding to 
things like state lines perhaps we could have delivered 
something that was meaningful for someone in the individual 
market.
    I have been in the individual market. I know that it is 
sometimes tough to find the plan you want. I have had adult 
children in the individual market. I have had to keep up with 
things that they chose not to but I thought was important. We 
do have regulation in the individual market. It occurs at the 
state level right now. It may be a bad thing. Maybe it needs to 
be a the national level, but, you know, when I just looked 
through the federal employee health benefits plan book, I get a 
better deal because my residence is in Texas than I would in 
California, and certainly a better deal than I would get in New 
Jersey, so maybe I don't want a national regulator who is going 
to base everything on an area that is really not germane to 
where I live, so we do have to be sensitive to the fact that 
the states are different.
    Now we passed a bill twice in the 108th and 109th Congress 
that would have allowed aggregations of small businesses across 
state lines, so-called association health plans. The reason 
there is not pre-existing conditions in the federal employee 
health benefits plan is not because we set up something that is 
better for ourselves. It is because the pool is so big, there 
are so many federal employees, which may be a good thing or a 
bad thing, we could argue about that, but there are so many 
federal employees that the pool is so large that pre-existing 
conditions actually don't enter into the equation. What we 
could do for writers across the country, for example, or 
architects across the country, let every architect buy into an 
association plan where all the other architects buy into it, 
realtors, whatever kind of association you want to make, and 
suddenly you have got a pool that has the market share of a 
company like Verizon that has employees in all states in the 
union and buys insurance for them.
    Mr. Arnold, I think you brought up about the affordability 
of the premium, and I don't know your income and I am not going 
to ask you, but have you looked at the House-passed bill and 
calculated what your premium would be?
    Mr. Arnold. No.
    Mr. Burgess. The House-passed bill, and I am not lecturing 
you here, I want to make you aware, the House-passed bill is a 
good deal for someone who is unemployed and has no insurance. 
It provides access that has never existed in the past. Your 
premium under the House-passed bill, and again I don't know how 
much you make and I am not going to ask you to tell us, but for 
someone who makes at 350 percent of the federal poverty level 
the annual premium, the annual premium would be right at $4,200 
a year, so a little bit more than what you are paying right 
now.
    Now 350 percent of the federal poverty level is a good 
salary. I don't know how it works out with California cost of 
living. But it is just a little under $38,000 a year for a 
single individual. I don't know whether you are married or not, 
and again I am not going to ask you. But just to point out 
that, yes, you have brought up a significant point that we need 
to pay attention to, that your premium has increased 
significantly under Anthem, and we are going to ask Anthem to 
justify what they have done in the California market.
    But I do want you to understand that with the House-passed 
bill that not everyone in your situation, depending upon 
income, someone who earns 400 percent of the federal poverty 
level, which is $43,000 a year, would be paying $5,400 in 
annual premium as a single individual in the government option, 
in the House-passed plan. Only 2 rating bands for younger and 
older, no tobacco rating, so there are some things in the 
House-passed bill that might not improve affordability in your 
situation, and that is really what we are talking about here 
because Anthem has affected the affordability of your policy. I 
would give anything to know, Ms. Meister, what you are going to 
be charged for your bone density. I won't ask you, but I will 
also suggest that I think your doctor was right to recommend 
it. And if your doctor recommended it when you were 65 years of 
age, yes, it would be covered under Medicare but your doctor 
would only be paid $40 for the privilege of providing you that 
service.
    Again, I don't know what your doctor was proposing to 
charge you. I suspect it was more than $40 but I don't know 
that. After you turn 65 under the big public option that we now 
call Medicare if your doctor charged you more than $40 for that 
procedure, my cost is $200----
    Mr. Stupak. The gentleman's time has expired.
    Mr. Burgess [continuing]. Your doctor would be violating 
the law to charge you the additional. So we will give up some 
things if we go with the House-based bill. That is why it is so 
important for us to get it right. That is why it is so 
important for us to go through regular order and not let the 
White House subsume the duties of the conference committee----
    Mr. Stupak. The gentleman's time has expired.
    Mr. Burgess [continuing]. Which is, unfortunately what has 
happened now. I told you you would regret having me here.
    Mr. Stupak. No, Mike. I have sat in this chair a long time 
and I have listened to you forever, and I know you always go 
over. I know I have to be diligent. I know I have to keep on 
you. I feel sorry for these witnesses because they are self-
employed. They took time off of their jobs probably at a loss 
of money to come and give us the courtesy of asking them 
questions, and you never asked them a question. So I feel sorry 
for our witnesses.
    Mr. Burgess. I supplied them with valuable information they 
couldn't have gotten any other place.
    Mr. Stupak. Yes. Well, it is amazing. It is my turn for 
questions. Let me just say a couple things. This committee, 
this subcommittee in the last 3 years have held hearings on 
under insured, on rescissions, on purging of small businesses. 
And I asked for this hearing. As I said in my opening, Michigan 
proposed a 56 percent rate increase. And I would have liked to 
have had this hearing in LA. We have had hearings in Indiana. I 
will go anywhere in the country to hold hearings on health care 
because I think that consumers in this country are being 
bankrupt by health insurance, and I want to see health 
insurance passed. And the reason for this hearing--and it is a 
coincidence. When we set this hearing, when we were doing 
things, we didn't know the White House was going to do a summit 
on health insurance. But I will go anywhere with this 
subcommittee. I will go to any district and hold these hearings 
because I think they are valuable.
    And when Michigan proposed a 56 percent increase for our 
people, I have the e-mails that they finally settled at 30 to 
39 percent increase for these small business people, much like 
the panel we have here today, and people just can't afford it. 
We are all truly one injury or one illness away from 
bankruptcy. But let me ask this question. Yesterday we did a 
hearing on Toyota, and 10 years ago if I would have bought a 
car and I buy one now today, I get all kinds of extra bells and 
whistles whether it is a Toyota, a General Motors, whatever it 
might be. Mr. Arnold, Ms. Henriksen, Ms. Meister, has your 
insurance given you more bells and whistles as you have seen 
these increases?
    Mr. Arnold, yours went up 74 percent in the last 2 years. 
Ms. Henriksen, I see premiums increased about by the time you 
do your premium, your deductible, and your out-of-pocket, that 
is about $31,000 before you even start tapping into anything. 
And, Ms. Meister, you are just trying to keep your drugs that 
will keep you breathing. Have you seen increases in benefits as 
these prices have gone up?
    Ms. Meister. No, less benefits.
    Mr. Stupak. Mr. Arnold.
    Mr. Arnold. Yes, also less for me. Last year, in fact, when 
my rates were raised 26 percent, Anthem also increased my 
prescription drug co-pay for both brand name and generic.
    Mr. Stupak. Ms. Henriksen.
    Ms. Henriksen. No, I haven't, and sometimes when I open my 
statement from them after going to doctor, I am shocked that 
like, oh, wow, they didn't cover that. You know, it is things 
like that, but I haven't calculated exactly any changes.
    Mr. Stupak. You mentioned your son that had the heart issue 
there, the hole in the heart. How long will they continue to 
hold like a pre-existing condition like you mentioned he is 
going to turn 22----
    Ms. Henriksen. Probably the rest of his life.
    Mr. Stupak. OK.
    Ms. Henriksen. He will always have a heart condition.
    Mr. Stupak. Which requires him to see a cardiologist. He 
doesn't have any problems. He's playing sports.
    Ms. Henriksen. He is completely fine. I mean, you know, you 
can only cinch it so far, and it can't be completely corrected 
so he will always have a condition in his heart, but he can 
only stay on my insurance till I claim him as a dependent.
    Mr. Stupak. Well, the other thing in looking at this file 
and WellPoint and Anthem here in California, and we are looking 
at one of the e-mails that the vice president for individual 
pricing states, it says Jim has asked Brian to price five or 
six downgrade options to be made available in conjunction with 
the upcoming rate action, meaning this increase they are 
passing on. In another e-mail the company's regional vice 
president and actuarial, Brian Curley, proposes that WellPoint 
create five or six California look-alike plans, look-alike 
plans for California, with a benefit or two removed to create a 
downgrade option upon renewal. My question, and I guess I will 
direct it to Ms. Meister, how does it make you feel to know 
that part of Anthem's business plan is to reduce or restrict 
your health care coverage being offered to you on downgrade 
options to switch it during your annual renewal. How are you 
going to be able to afford your medication?
    Ms. Meister. This is what has been happening the last few 
years. I have had to downgrade because the price has gotten too 
high so I will have to pay for my medications through my 
savings through----
    Mr. Stupak. What do you think that cost is going to be for 
your brand name drug if you are going to go to the generic, so 
what will that out-of-pocket cost be, do you know, of this 
drug?
    Ms. Meister. Yes. Accolate is $100 and I have to buy that 
every month, so that----
    Mr. Stupak. $100 for a 30-day supply. OK.
    Ms. Meister. That is just for the Accolate, yes.
    Mr. Stupak. Ms. Henriksen, Anthem, I believe you said, 
offered to switch you to a similar plan to the one you have now 
which would come with higher deductibles. What is your opinion 
on the scale backs?
    Ms. Henriksen. Pardon me?
    Mr. Stupak. What is your opinion on, well, OK, I can get a 
different plan. I am going to get less coverage but I am going 
to have to pay more.
    Ms. Henriksen. I figure I don't have a choice. I can't 
afford the premium that they are stating for the existing 
policy they have now so I have a call in to my agent and, you 
know, he is going to go over options for me, but I know from 
talking to him almost a year ago that because of my son's heart 
condition I can only downgrade so far until he has to be 
underwritten, and I don't want to do that. So, you know, I 
would probably go with the downgrade of the $2,500 deductible 
and 5,000 out-of-pocket because it is $47 more than my existing 
payment but it is not $310 more.
    Mr. Stupak. What is the breaking point when you can no 
longer afford it at all?
    Ms. Henriksen. Oh, I think it is insane as it is now.
    Mr. Stupak. You said it was almost as high as your 
mortgage, right?
    Ms. Henriksen. Yes. It is $92 less than my mortgage 
payment.
    Mr. Stupak. Mr. Arnold, let me just finish up with you, if 
I may. I know you have had a 74 percent increase in your 
premium rates according to your testimony. Obviously, your 
insurance hasn't gotten better. Do you believe Anthem is trying 
to push customers off the plans with less comprehensive 
coverage and in the plans that barely meets their needs so they 
just drop coverage all together?
    Mr. Arnold. Yes. I mean I think the reason that the plans 
are going up are because healthy people are dropping it all 
together because they are like me. They are getting priced out 
of it. I mean I am generally a healthy person. I have an 
existing condition, but it is getting so high that I mean if it 
went up to $800 a month I would have to drop it. That I 
couldn't afford. No way. But that is an extreme. Just to prove 
a point. I mean 319 a month which they want to raise it to is 
very, very difficult for me. The 231 that I have had for the 
last year, I have not been happy with but, you know, I have 
managed to do it even though last year was a pretty tough year 
in this economy and my income was lower last year than it was 
the year before. So, yes, they are trying to push people like 
me out.
    Mr. Stupak. Thank you. My time has expired. Thank you all 
for being here. Mr. Gingrey, questions, please.
    Mr. Gingrey. Mr. Chairman, thank you. And I will be fairly 
brief. I wanted to direct my first question to Ms. Meister. Ms. 
Meister, you mentioned in your testimony kind of in your 
closing that you want just what members of Congress, members of 
the House and the Senate have, nothing more, nothing less, and 
I want to just say to you and to the other witnesses that I 
agree with you. I agree with you. I think that the American 
people in every state should have that opportunity and when the 
health care reform bill was first marked up in this committee, 
H.R. 3200, we spent hours and several days, in fact, several 
weeks marking up that bill and amending it and making some 
suggestions for amendments on both sides of the aisle. In fact, 
two amendments that I had in particular that I think you will 
like, and I would like to ask your opinion on it, was that all 
Americans have what we have, members of Congress, and that 
amendment unfortunately went down pretty much straight party 
line, and I followed up with that and said, well, you know, if 
there is a public option, and I think you in your testimony 
talk about a public option, as you know, right now there is no 
public option in any of the bills, but in this committee there 
was. H.R. 3200, there was a robust public option, as I am sure 
you know.
    And so my amendment was, OK, if the public option is so 
good, maybe it is, then let's show good faith in it and have 
every member of Congress, House, Senate, and indeed the 
President and the Administration and their families sign up for 
the public option, and that also failed on straight party line 
vote. I would like to know your opinion and maybe the other 
members of the panel, what they think of that, those two 
recommendations.
    Ms. Meister. I am very willing to pay for insurance. I just 
want to pay for something that is affordable and that actually 
covers me. We have Medicare. I thought the plan that extended 
Medicare to 55, down to 55, was a good idea, and have those 
people between 55 and 64 pay for the plan, so I don't know what 
else to say. I don't want to have to be spending the next 15 
years of my life looking forward to being 65 so I can get 
Medicare.
    Mr. Gingrey. Well, yes, and certainly I understand your 
point there but do you realize that, and I am sure you do, that 
Medicare currently has an unfunded liability over the next 50 
years of $35 trillion, and so to add that many more millions of 
people between age 55 and 64 when we can't even meet the 
obligations that we currently have, you know, that was the 
problem with that proposal.
    Ms. Meister. I see the country supported bail out for the 
banks and for the car companies. I would like to see them bail 
out the American people.
    Mr. Gingrey. And I think you will be pleased to know that I 
voted against that bail out for the car companies, and I thank 
you for bringing that up. Mr. Arnold, let me shift to you just 
a minute in regard to meaningful health reform. You mentioned 
that. By meaningful health reform, would you include in that 
medical liability reform?
    Mr. Arnold. Absolutely, I would. I think that ideas on both 
sides of the aisle, there are good ideas on both sides. Just to 
address what you just said a moment ago about the public option 
and so forth the reason that--well, you explicated the reason. 
You said it was party line vote. It is politics. The party that 
is not currently in power doesn't want to give the party that 
currently is in power and the President a victory of any sort, 
so parties and politicians and parties----
    Mr. Gingrey. Well, Mr. Arnold, reclaiming my time because I 
just got a very few seconds left. Absolutely, I think that we 
ought to give the President the opportunity to do it in a 
bipartisan way and that is why when we have this meeting 
tomorrow at the Blair House, the health care summit, I feel 
sure that the members on the Republican side from the House and 
the Senate, maybe Dr. Coburn or Dr. Brasso representing health 
care in particular as a profession will offer that, and I look 
forward to the President hopefully adopting it because 
California, as the three of you well know, enacted that 
legislation back in the late '70s. I think the acronym was 
MICRA, and it has worked. It has worked. And fortunately the 
California legislature hasn't ruled any of that 
unconstitutional so I am glad that you support medical 
liability reform. Mr. Chairman, I see my time has expired, and 
I will yield back.
    Mr. Stupak. Mr. Arnold, did you want to finish an answer 
there?
    Mr. Arnold. Yes. I would like a brief moment to finish what 
I was saying. I thank Mr. Gingrey for what he said, and I take 
him at his word and I would hope that you would encourage all 
of your parties and colleagues to operate in good faith and not 
to use words, irresponsible words, like socialism and death 
panels and so on and so forth that you hear from parties and 
politicians and from partisan media commentators because they 
are completely not an accurate description of the issues that 
are at stake. Thank you.
    Mr. Stupak. Ms. DeGette for questions.
    Ms. DeGette. Thank you. Thank you, Mr. Arnold, for 
clarifying your statement. I think what you said is important 
and I hope everybody listens to it. It seems to me in listening 
to all three of your testimony aside from the fact that you are 
buying insurance on the individual market the other problem 
that each of you has is either yourselves or family member with 
a pre-existing condition that pretty much limits you from 
trying to shop around and buy cheaper insurance, is that 
correct, Mr. Arnold?
    Mr. Arnold. Yes.
    Ms. DeGette. Ms. Henriksen, Ms. Meister. And I understand, 
Ms. Henriksen, when you were talking, I told my staff, I said I 
feel like this is me because I am like you, I have two 
daughters, 20 and 26, and like you my younger daughter has a 
pre-existing condition which she will have for her whole life. 
Not only does that limit--even though I am in the federal 
employees insurance system, I am still limited in shopping 
around because of underwriting, but what I am the most 
terrified about with her is when she graduates from college and 
starts trying to buy insurance on her own she is going to have 
an impossible time buying a policy, especially as a young 
person who is just starting out in the labor market that will 
cover her pre-existing condition. I am sure that you have 
thought about that too with your son.
    Ms. Henriksen. That scares me immensely and with businesses 
eliminating all insurance group plans and things like that in 
my industry hardly anybody has it. I don't see how he is going 
to be able to pay for an individual policy with a pre-existing 
condition when he is working.
    Ms. DeGette. Right. So here is my question for all three of 
you. If you could go on some kind of insurance exchange that 
allowed anybody to go in and buy from different insurance 
companies, and the people on that exchange so you could choose 
between competition between different insurance companies and 
they couldn't exclude you or your kids because of a pre-
existing condition, do you think that would help you with your 
insurance choices? Mr. Arnold.
    Mr. Arnold. It sounds like it might, yes.
    Ms. DeGette. Ms. Henriksen.
    Ms. Henriksen. Yes. I believe that it is free enterprise, I 
guess, and you are allowed the privilege of shopping for almost 
anything else. Why shouldn't it be insurance too?
    Ms. DeGette. Ms. Meister.
    Ms. Meister. Yes, because we are being penalized for being 
individuals and having individual plans.
    Ms. DeGette. Right. And, you know, Ms. Meister, I want to 
ask you about something because you said you thought it was as 
good idea if they extended Medicare down to age 55 and with 
every passing year that idea sounds better to me too. But were 
you aware that those proposals didn't just say we are going to 
pay for people to have Medicare. They would actually have to 
buy in.
    Ms. Meister. Oh, yes, absolutely.
    Ms. DeGette. And you would be willing to buy into that 
Medicare is what you are saying.
    Ms. Meister. Absolutely.
    Ms. DeGette. I just wanted to clarify that. OK. Now I just 
want to explain one more thing with the 3 of you because I 
think there has been some miscommunication about insurance 
companies selling insurance across state lines. Were you aware 
that right now insurance companies can sell insurance across 
state lines, but if they do that they have to comply with the 
laws of the state where they are selling that? Mr. Arnold, were 
you aware of that?
    Mr. Arnold. No, actually I wasn't.
    Ms. DeGette. OK. Ms. Henriksen.
    Ms. Henriksen. No, I wasn't either.
    Ms. DeGette. Ms. Meister.
    Ms. Meister. No.
    Ms. DeGette. OK. Well, see, what happens right now 
different states like California or Colorado or Iowa or 
Georgia, any of the states, they can sell insurance across 
state lines, but if they do that they have to give people the 
insurance coverage that those states require, so if California 
says you have to cover maternity benefits or you have to cover 
prostate cancer screening or something else, then they have to 
do that, but what the proposal that some from the other side of 
the aisle have made is to say people could sell insurance 
across state lines but they would only have to comply with the 
laws of the state where they are incorporated. It would be sort 
of like how all corporations, not all, but a lot of 
corporations incorporate in Delaware because those state laws 
are very favorable to corporations.
    So they can incorporate in a state which had very low 
requirements for coverage. And I want to talk to you about 
that, Ms. Henriksen, because you got 2 kids. Would it help you 
to be able to buy a very low cost plan but one that didn't 
offer very many coverages for you like mammography or some 
screenings for your kid? Would that help you?
    Ms. Henriksen. I guess I would have to see specifically 
what they were offering.
    Ms. DeGette. What it was, yes.
    Ms. Henriksen. But, like I said, we are so lucky, all three 
of us, to be healthy. We never go to the doctor. We have very 
little cost incurred, you know, through insurance so I would be 
interesting to see what I could eliminate and what I would then 
need. I could pick and choose, I guess.
    Ms. DeGette. Yes, you could pick and choose. But you 
wouldn't want to buy a plan that would barely cover anything if 
you got sick.
    Mr. Henriksen. No.
    Ms. DeGette. And, Ms. Meister, would you want to buy a plan 
that wouldn't cover the specific medications that you needed?
    Ms. Meister. I would have to work it out and actually 
figure out the financial side of it and see how much my 
medications cost me per year and how much I am being covered. I 
mean even now I have a deductible for the brand. I believe it 
is $500. Until that kicks in, it is 4 months into the year.
    Ms. DeGette. OK. Thank you.
    Mr. Stupak. Thank you. Mr. Braley for questions. We will 
wait for Mr. Green to get settled there.
    Mr. Braley. Thank you, Mr. Chairman. I began my opening 
remarks by talking about the fact that I am not a Democrat who 
limits my conversation to health insurance reform because I 
believe that health insurance reform is a key part of 
comprehensive health care reform. And I am so glad the three of 
you are here today because you helped put a human face on what 
is wrong with health care and health insurance delivery in this 
country right now. We had 17 town hall meetings back in my 
district last summer and what I learned is that people who 
oppose health care reform, and especially the health care 
reform we have been talking about, really don't want to talk 
about the human face of health care, so I want to spend a few 
moments talking to you about that.
    One of the people who came up to me in my last town hall 
meeting ripped the House health care bill, and then said after 
the meeting, Congressman, I need your help. I said what can I 
do? He said my brother was just diagnosed with non-Hodgkin's 
Lymphoma, and he lives in the northern part of your district. 
The closest place for him to get treatment is at the Mayo 
Clinic in Rochester, Minnesota, but he can't get treatment 
there because they are not in his insurance plan's provider 
network. Another young woman interviewed me during the health 
care debate who was a class mate of my 2 sons, sat down to 
interview me, and the first thing I noticed about her was she 
had a cleft palate. And during her interview, she told me that 
she was so excited because her parents had almost saved up 
enough money for her last surgery, and I said isn't that 
covered by your insurance policy? And she said, no, it is 
defined as cosmetic surgery under my plan.
    So a woman, 21 years old, born with a birth defect just 
like cystic fibrosis or cerebral palsy, which are covered under 
health care policies, has gone 21 years with a birth defect 
that limits her ability to eat, to talk and, most importantly, 
her self esteem. The last one I want to talk about is my 
nephew's son, Tucker Wright, who I have talked about before in 
these hearings. Tucker was 18 months old when he was diagnosed 
with liver cancer, had 2/3 of his liver removed, has had 
enormous medical costs, and thank God he is still alive, but he 
will almost certainly reach his lifetime cap under his private 
health policy by the time he is 18. He will almost certainly 
have another bout of cancer before he turns 18. His parents are 
doing fundraisers to cover their uninsured medical costs. Both 
of them work full time and have good health insurance, and yet 
if his parents want to change jobs they would not be able to 
because of the exclusion for pre-existing conditions.
    All three of you have lived this in your own lives so I 
want to ask you, Ms. Meister, you have chronic asthmas, you 
talked about that. If you opted to terminate your policy with 
Anthem and purchase an individual insurance policy to get a 
more reasonable deductible or premium, you would have to go 
additional medical underwriting, correct?
    Ms. Meister. I would imagine so, yes.
    Mr. Braley. Right, because that is the way this works. And 
given your chronic asthma, do you think that that would be a 
problem for you in getting additional coverage?
    Ms. Meister. Personally, I work out every day. I live a 
very healthy life so I don't--but on paper that is a different 
story.
    Mr. Braley. You have to fill out the same questionnaire.
    Ms. Meister. They should talk to me like you are talking to 
me.
    Mr. Braley. Yes. And, Ms. Henriksen, you talked about your 
son's problem with the condition with the hole in his heart. 
When you fill out any application for underwriting purposes, 
you are required to go through your family's health history and 
that would appear.
    Ms. Henriksen. Yes.
    Mr. Braley. And does that concern you?
    Ms. Henriksen. Oh, completely.
    Mr. Braley. And, Mr. Arnold, you were the one who concluded 
your compelling remarks with a smack down to all of us about 
doing what is right, and you also have been affected by this 
because these are the types of things that make it frustrating 
for people to get private insurance because this can be so 
daunting. Is the experience that you have had consistent with 
what the other witnesses and some of the people we have been 
talking about face every day and try to get health care 
coverage?
    Mr. Arnold. Absolutely so, yes. Yes. I won't repeat 
everything that they just said, but what Ms. Meister said about 
being underwritten again and pre-existing condition either not 
being covered or causing the base rate on that policy to be 
marked up by my insurance agent told me 20 to 100 percent 
because of that condition. These are the kinds of things that 
can happen.
    Mr. Braley. Mr. Chairman, health insurance is supposed to 
help us when we are sick, not punish us for requiring medical 
care, and I think what we have heard today reinforces the need 
to get health reform done now. We as a country cannot afford to 
wait any longer. Passing meaningful health care legislation 
that eliminates disqualification based on pre-existing 
conditions is absolutely essential so that every American can 
have access to quality comprehensive health insurance, and I 
yield back.
    Mr. Stupak. Thank you, Mr. Braley. I should note that 
Representative Hill is with us. He is a member of our 
committee. We had a hearing on rescissions down in his district 
earlier this year in Indiana. Like I said, we would be happy to 
go where we need to go to do these hearings because I think it 
is important that we put a human face on the cost of health 
insurance. We have votes coming up. I am going to try to get 
through this panel if we can. Mr. Green, you are up for 
questions, please.
    Mr. Green. I appreciate my colleague from Iowa questions 
and your responses. I want to look at it from a different tact 
because you have trouble with rate regulation or insurance 
regulation in California. In Texas we have never had any 
regulation. It is literally the free market. And having been 
involved as a state legislator in trying to deal with fairness 
for my constituents and purchasing individual policies and 
having a son who had the same problem is his small business 
trying to find an individual policy. He couldn't find one 
because in high school he was diagnosed with colitis and nobody 
wanted to write him except for $2,000 a month. He has found it 
through an HMO or PPO in Real Ranch Valley in Texas so he can 
get it at least for his 2 boys now and his wife because he just 
couldn't do it. So problems in individual market and oversight 
whether it is in California or Texas or Virginia or anywhere 
and that is the issue. And that is why the lack of oversight or 
ability to look at what these premium increases that we are 
getting ready to experience.
    My concern, and this is something that members of Congress 
have to defend when we travel anywhere, and believe me it has 
made us watch where we are traveling. I want to ask some 
questions. In addition to paying their top executives 
handsomely between 2007 and 2008, WellPoint spent over $27 
million to host 103 executive retreats off company premises. 
The Democrat caucus actually had our retreat here at the 
Capitol. Fifty-five of these retreats, over half the costs were 
over $100,000. To put that in perspective, the median income in 
the United States in 2008 was $52,000, and so you can see that 
over half the retreats were over 100,000 so that was well over 
the median income. In 2007, WellPoint spent 3.7 million to host 
782 attendees at a brokers and agents event at the Phonecian, a 
lavish resort and spa in Arizona, for 5 days. And if I could 
put up a picture of that slide.
    Later that year, WellPoint sent 154 attendees to the Four 
Seasons resort in Manlei Bay, Hawaii for a 4-day broker event 
that cost the company 850,000. That is over 500,000 a person. 
If we could put that slide there. In 2008 during the height of 
the recession, WellPoint paid over 1.3 million to host 360 
attendees at the Four Seasons Hotel in San Diego, and if we 
could put that slide up there. Ms. Henriksen, do you think a 
company that is struggling to keep up with the rising health 
care costs would be able to send thousands of employees and 
agents on lavish retreats such as these?
    Ms. Henriksen. No, definitely not. I would like to know 
what they are doing at these retreats.
    Mr. Green. Mr. Arnold.
    Mr. Arnold. Of course not.
    Mr. Green. Ms. Meister.
    Ms. Meister. No.
    Mr. Green. What is your reaction to the images and figures 
because I know what my constituents would be if I was at that 
locations, and since you are ultimately paying the freight or 
asked to pay the freight, does it make you wonder if your hard-
earned premiums have indirectly gone to paying for the spa 
retreats and the golf getaways?
    Ms. Meister. I was thinking I wish I was an executive at 
WellPoint.
    Mr. Green. Mr. Chairman, it seems unconscionable that the 
company with the spending record that would reach deeper into 
the pockets of the policy holders at a time when so many 
Americans are struggling to stay afloat, it also seems to me 
that any company that can afford to send hundreds of their 
employees to these lavish retreats all over the world can 
afford to maintain reasonable and affordable premium rates for 
its customers, and that is what bothers me. On the individual 
market, we don't see that regulation and oversight on the state 
level, and that is why maybe on the national level, I know 
President Obama earlier this week announced that, there are 
parts of his bill that I have problems with or his suggestion, 
but one of the things I like is if we are going to sell 
insurance across state lines to individuals whether they be in 
Houston, Texas where I represent or San Diego or anywhere else, 
I would like to see that there is some oversight on what they 
are doing with that money to justify those premium increases. 
Thank you, Mr. Chairman.
    Mr. Stupak. Thank you, Mr. Green. Continuing with 
questions, Ms. Sutton, questions, please, for this panel.
    Ms. Sutton. Thank you, Mr. Chairman, and thank you for your 
compelling testimony. I think your stories speak to the stories 
of many Americans across the country, including my 
constituents. To follow up on my colleague, Mr. Green's 
questioning, I would just like to talk a little bit about the 
executive at WellPoint. Not only do we see the lavish retreats 
that were pictures that were reflected on the screen, we also 
know that as premium rates increase and become more and more 
inflated and health insurance coverage slips further out of 
reach for people just like you, it is important to ask where 
are the revenues going, not only to retreats but also to 
executive salaries.
    WellPoint has stated publicly that these most recent 
premium increases were necessitated by rising medical costs and 
a shrinking risk pool, that it needs these rate increases in 
order to stay afloat. But I understand that companies do need 
to turn a profit. We all understand that. But what I don't 
understand is how WellPoint can claim that these increases, 
rate hikes that are literally bankrupting its policy holders 
are necessary to stay in business especially when we see what 
we see when it is spending millions upon millions of dollars 
compensating its top executives. Data received by the committee 
show that WellPoint paid its executives over $347 million in 
2007 and 2008 alone.
    In 2008, WellPoint paid $115 million to 85 senior 
executives compensating 39 executives over a million dollars 
each. That year one executive made $9 million and two 
executives made over $4 million. And I guess I would just like 
to ask you, our witnesses and policy holders, how you feel 
about a portion of your premium payments bankrolling multi-
million dollar salaries in these tough times. Ms. Meister, do 
you believe a company that can afford to pay a single executive 
nearly $10 million in 1 year has the right to demand higher 
premiums from you so that it can ``keep up with the market?''
    Ms. Meister. No, I don't. And I agree with something Ms. 
Henriksen said. She said if I raised my rates like they raise 
our rates, I wouldn't have clients, and that is the same in my 
business. You know, there is reasonable and then there is just 
outrageous.
    Ms. Sutton. Thank you. Ms. Henriksen.
    Ms. Henriksen. Well, not to be funny but it makes me sick 
to think that all of this money is going to executives in this 
economy when so many people are struggling. I do make good 
money, yet my industry is really struggling. There are no new 
hotels being built. There are no, you know, residential. There 
is no building going on so I suffer because of that.
    Ms. Sutton. And Mr. Arnold.
    Mr. Arnold. I, of course, too think it is unconscionable, 
and I believe the number I read was that in the last quarter 
WellPoint had a profit of over 4 billion. Even if you cut that 
in half, it is still an incredibly healthy profit, so it just 
speaks to, as I said in my testimony, profiteering versus 
profit making. There is a difference. And profit making is 
fine. It drives our economy. It is the foundation of American 
business. But profiteering, when it affects people like us in 
the way that it has, is just wrong. It speaks to a lack of 
decency, and lack of decency may not be illegal but it is wrong 
and that is why I think it requires government intervention and 
regulation.
    Ms. Sutton. Thank you. I think you all make the case very 
well, and for one don't think a company that is paying its 
executives more than $100 million a year has any right asking 
Americans to subsidize these outrageous salaries in the form of 
increased premiums and stripped down coverage. It is not like 
you are getting more for what you are paying.
    Mr. Stupak. The gentlelady has yielded back. We have three 
votes on the floor, and the first vote is the rule to allow 
debate to begin on the antitrust exemption if we are going to 
take it away from the insurance industry so it is a rather 
critical vote and thus far it is down basically party lines. So 
I am going to recess for--hopefully we are back here in 20, 25 
minutes. And I would like this panel to stay if they can. I 
would love you to stay because you have Ms. Schakowsky and I 
know Mr. Hills, Ms. Capps, and Ms. Eshoo all probably had 
questions too. It has been a good panel. We would like you to 
stay. So let us try to be back in here in about--let us call it 
25 minutes. This vote might stay open for a little bit. Twenty-
five minutes, so we are in recess till 12:25.
    [Recess.]
    Mr. Stupak. Thanks for coming back right away, all the 
members. Let us resume this hearing. When I left, I think Ms. 
Schakowsky, you are up for questions if I remember correctly. 
And thanks to the panel again for staying.
    Ms. Schakowsky. Thank you, Mr. Chairman, and thank you 
panel. You know, it occurred to me that this panel would only 
take place of the industrialized nations in the United States 
of America, that in every other industrialized country, they 
have made the threshold decision that healthcare would be 
provided in some fashion, maybe through the public sector, 
often entirely through the private sector, but still to all of 
their people.
    The other thing that occurred to me when we look at all 
three of you, and I guess I would have to add your son, we are 
talking about essentially healthy, high-functioning 
individuals, not a bunch of sick people, which underscores 
that, you know, it is hard to reach hardly any age at all 
without having some sort of a preexisting condition.
    I had, and I don't know where they just disappeared to 
here, this is from Blue Shield of California. It is a little 
old, 2006, a three-page, four column list. It says ``Applicants 
who have any of these conditions listed below may be declined 
without medical record review.'' Things like adoption in 
progress, how about that? Breast microcalcifications. I mean, 
lots of women have that. Diabetes with hypertension. We were 
talking about Diana's daughter who has--pregnancy of self, 
spouse or significant other. Varicose veins would be a 
preexisting condition that would deprive people of, you know, 
no, you can't have this insurance.
    I wanted to see if we could put up on the screen, the 
Committee recently learned that these recent premium increases 
may only be the tip of the iceberg. Staff, if anyone here to 
put up the internal----
    Mr. Stupak. There you go.
    Ms. Schakowsky. There we go.
    [Slide shown.]
    Ms. Schakowsky. WellPoint analysis of what potential rate 
increases would do for them. These are various scenarios. The 
first scenario calculates, they call them, SAFs. Those are 
really rate caps. If they left it unchanged, that is, the rates 
unchanged, the second scenario actually proposes to lower the 
rate caps to 37 percent which is two percentage points lower 
than the rates that Anthem filed with the Department of 
Insurance. And the third proposes, and I quote, ``to remove 
these rate caps completely.'' The scenario would result, they 
say, in a maximum of 228.4 percent for certain plans. And had 
this scenario been implemented, over 27,000 customers would 
have received a 228 percent increase.
    The fact that they would even consider and do the scenario 
to me is just incredibly shocking, but I guess my conclusion is 
that we cannot just leave the insurance companies in the 
driver's seat deciding how they will regulate themselves 
according to rates. What our bill did and what the President's 
bill does is establish rate review that could actually prohibit 
some of these rate increases, and I wanted to hear your 
feelings about that. Let us start with Ms. Meister and just go 
across.
    Ms. Meister. Yes, I mean, that is what I said before. We 
need to have a maximum percentage put on of how much insurance 
companies can raise their rates each year, just like some 
cities have rent stabilization.
    Ms. Schakowsky. Right.
    Ms. Meister. There could be stabilization of insurance 
rates.
    Ms. Schakowsky. Let me also say some states do that. I am a 
state that does not, one of the 25 states that doesn't do any 
rate regulation whatsoever right now. Ms. Henrikson?
    Ms. Henrikson. I am all for a national committee that would 
review rates. I feel California has been neglectful in that 
sense. So I know it is based on where you live and all that 
kind of thing, but I believe a national rate regulation would 
be very beneficial.
    Ms. Schakowsky. It would be called a National Health 
Insurance Rate Commission I think is what we are talking about.
    Mr. Arnold. Yes, I agree with that, too, and I would also 
add that I think if there were rate regulation on insurance 
companies that that would also put pressure on medical 
providers, hospitals and doctors, who we keep hearing are 
raising their rates so irresponsibly. If that is true, that 
would force them to change their ways as well.
    And just very quickly, what you said about unregulated 
insurance premiums keep rising, it is true. I mean, my rates 
went up 26 percent last year, 38 percent now. Why should I have 
any reason to believe they won't try and raise them another 40 
percent next year? I mean it is logical to think that they 
would.
    Mr. Stupak. Thank you. A member of the Full Committee, Ms. 
Eshoo, do you have questions, please, of this panel? And thanks 
for being here. You are not a member----
    Ms. Eshoo. Thank you, Mr. Chairman.
    Mr. Stupak [continuing]. Of the Subcommittee but a member 
of the Full Committee.
    Ms. Eshoo. Thank you, Mr. Chairman, for having this 
hearing. I appreciate the opportunity to participate, and I am 
very glad that we have the rules that allow members from other 
subcommittees to join you. This is a very important hearing.
    I want to thank the witnesses. So many members have said 
you really put the human face on this. And while my questions 
are not directly for you but rather the executive, I just 
thought that I would enter for the record, I did write to Ms. 
Braly, the President and CEO of WellPoint, after the news came 
out about the rate hikes up to 39 percent. But I think that it 
is a telling thing that Anthem Blue Cross, the unit, in an 
email message urged their employees to oppose healthcare 
reform. And that email is reported to have said that reform 
proposals would ``cause tens of millions of Americans to lose 
their private coverage.'' And it seems to me that this panel is 
right on the edge, given what the increases were. So I think 
that more than anything else, you have helped to separate, you 
know, the political rhetoric that has gone across the country, 
and really what the facts are because this is your life. You 
are speaking of real-life experiences. I can't think of a 
better panel to have come in and testified. This case is not 
over. I think that there are, I know that there are, many of us 
that to our last breath will fight for the kinds of reforms 
that need to take place, both in the health insurance industry 
and healthcare as well because this simply cannot be sustained, 
not individuals, not families, not local governments, not state 
governments, not the Federal Government and not businesses, 
either. So thank you for traveling across the country to 
testify. I admire your spirit, and I like the way you just keep 
following up with members and saying it the way it is. That is 
not often the case with witnesses, so we thank you.
    Thank you, Mr. Chairman. I am going to have to leave for my 
Intel Committee meeting, but I thank you again for your 
legislative hospitality.
    Mr. Stupak. Thank you. Well, that concludes questions of 
members of the panel and of the Committee. So I want to thank 
this panel for coming. Let me just say one thing. Mr. Arnold, 
in a question that was put to you, a clarification. I don't 
want to get into the healthcare debate because I think it is 
more important that we hear from you. We have had enough 
healthcare debates. We need to act and move legislation along. 
But there was some questions about your premium, what you would 
pay and what you would pay underneath the House bill as it was 
passed. I think Mr. Burgess asked you some questions along 
that. Those numbers he was quoting you is from Congressional 
Budget Office, and that would take place in 2016. They wouldn't 
be what your current premium would be, plus underneath the 
House bill you would have a full plethora of services. You 
wouldn't be denied because of preexisting injury or illness. 
You have preventative care. There is a number of benefits there 
in the House bill that is probably not covered in your current 
one. So just to clarify the record, that number is thrown out 
to be more than your current policy would be in 2016, and we 
don't know what your policy would be in 2016 from Anthem we are 
going. So just a clarification.
    Again, let me thank this panel.
    Mr. Burgess. Mr. Chairman, with all due respect.
    Mr. Stupak. All due respect, I will let you go for a minute 
but I am not going to let you pontificate for 10 minutes.
    Mr. Burgess. No pontifications. That was based on the 2009 
figures if the bill had passed last year. The Chairman is 
correct because none of the benefits go into effect for 4 years 
from the passage of the bill. Taxes of course would go into 
effect on day one.
    And also, just a point of clarification, Mr. Arnold. You 
made the comment just a moment ago that providers were raising 
rates irresponsibly. Do you have an example for us of a 
provider that you have encountered that has raise rates 
irresponsibly?
    Mr. Arnold. I don't, but I think your next witness, Ms. 
Braly, will say over and over again how they are raising their 
rates.
    Mr. Burgess. And I am ready for that. I just needed to know 
if you had some information that I needed to be aware of.
    Mr. Arnold. No, I don't personally have specific examples 
of that.
    Mr. Burgess. Most doctors in my state, and I suspect 
California is the same way, our prices are set by the insurance 
companies which in turn are set by Congress with Medicare 
rates, and private insurance pays a percentage of what 
Medicare's maximum allowable fee schedule is, even for those 
procedures that are not covered under Medicare, like 
childbirth. So I just wondered if you had some direct 
experience because I do intend to question Ms. Braly about that 
extensively.
    Mr. Waxman. Will someone yield to me?
    Mr. Stupak. Yes.
    Mr. Burgess. I would be happy to yield to----
    Mr. Waxman. Medicare sets rates for the whole country, and 
it turns out that Medicare could be less than what private 
insurance pays in any particular area. But the private 
insurance companies negotiate the rates presumably with the 
doctors and other healthcare providers. They and Medicare are 
faced with ever-increasing costs in healthcare. That is a fact. 
It doesn't mean that anybody is doing anything wrong, but the 
system is costing more and more money, and one of the things we 
try to do in health reform is not only reform the insurance 
system so we don't have people who have to fight on an 
individual basis to get any opportunity to buy insurance at a 
fair amount, but we try to hold down healthcare costs overall, 
and that is important. So I just wanted to raise that point. 
Thank you.
    And I join with the Chairman in thanking these witnesses 
for being here. You have been terrific. Thank you so much.
    Mr. Stupak. Thank you again. We will dismiss this panel and 
thanks for your testimony. I would now like to call up our 
second panel of witnesses.
    On our second panel we have Angela Braly, President and 
CEO, WellPoint. Cynthia Miller, Executive Vice President, Chief 
Actuarial and Integration Management Officer of WellPoint.
    Welcome. It is the policy of this Committee--signs down, 
please.
    Ms. Braly. Pardon me?
    Mr. Stupak. Before we get going, we are not going to allow 
signs and that while we are trying to conduct this hearing, OK? 
No, just put them away. Very good. Thank you.
    It is the policy of this Subcommittee to take all testimony 
under oath. Please be advised that you have the right under the 
rules of the House to be advised by counsel during your 
testimony. Do you wish to be represented or advised by counsel?
    Ms. Miller. No.
    Ms. Braly. No.
    Mr. Stupak. OK. I am going to ask you to please rise, raise 
your right hand to take the oath.
    [Witnesses sworn.]
    Mr. Stupak. Let the record reflect that the witnesses 
replied in the affirmative. You are now under oath. We will 
have an opening statement. It will be 5 minutes long. If you 
would like to submit a longer statement for inclusion in the 
record, we will be happy to submit it.
    Ms. Braly, if you don't mind, we will start with you.
    Ms. Braly. Yes.
    Mr. Stupak. OK. Just pull that up. There we go. Great.

   TESTIMONY OF ANGELA BRALY, PRESIDENT AND CEO, WELLPOINT, 
  INCORPORATED; AND CYNTHIA MILLER, EXECUTIVE VICE PRESIDENT, 
 CHIEF ACTUARY AND INTEGRATION MANAGEMENT OFFICER, WELLPOINT, 
                          INCORPORATED

                   TESTIMONY OF ANGELA BRALY

    Ms. Braly. Thank you, Mr. Chairman, and members of the 
Subcommittee for this opportunity to discuss rising healthcare 
costs and the need for sustainable healthcare reform. This is a 
very important week for all Americans, and I am sure you join 
me in hoping that tomorrow's health summit will be the 
beginning of a truly constructive, positive process in which 
every American can have confidence.
    I am especially pleased to have been invited to speak with 
you because I understand the burden that rising healthcare 
costs put on families. Because of our role in healthcare, it is 
often insurers who have to deliver the bad news regarding 
spiraling healthcare costs. There is nothing I would like to do 
better than be able to report to our members that the medical 
cost trend is going down. That is why I appreciate the 
opportunity to explain why healthcare costs are rising not only 
in California but across the country. The increases we are 
seeing in California are due to factors that we have been 
sounding the alarm about for years, the rise in healthcare 
costs and healthy people opting out of the system when other 
issues arise, such as the tough economic times we are 
experiencing today.
    These factors led to the rate increases you have seen from 
our company and others in California. Rising healthcare costs 
are driven by many factors including hospitals and other 
healthcare providers charging higher rates, new medical 
technology, underpayment by government programs, the growth in 
chronic diseases and conditions like obesity, and an aging 
population. These increases are generally compounded when 
younger, healthier members drop their insurance leaving those 
who most need healthcare to foot the bill. These issues are 
particularly acute in California where our experience has been 
that medical inflation is in the double-digits. Also in 
California, we are required to offer coverage through two 
guaranteed issue programs which by themselves lost almost $70 
million in 2009. Those are important programs that serve an 
important purpose, but their costs are ultimately borne by 
other members in California.
    Unless a legislative proposal addresses the fundamental 
issue of rising healthcare costs, it cannot be considered 
sustainable healthcare reform. Unfortunately, the leading 
proposals being discussed in Washington don't do enough to 
control costs and don't do enough to get everyone into the 
system. We have put forward substantive proposals on both these 
fronts. My testimony submitted to the Committee includes our 
specific suggestions on reform, but let me highlight just 
three.
    First, Congress could address defensive medicine and 
inappropriate care by including meaningful medical malpractice 
reform in the legislation.
    Second, Congress could also require that the principles of 
evidence-based medicine be used to guide how payments are made. 
While this may seem like a technical issue, it is these kinds 
of reforms that can have a lasting impact on quality and cost.
    Third, in reforming the health insurance market, Congress 
must enact policies that ensure a broad and stable risk pool as 
they impose other requirements on the marketplace.
    We know that every facet of the healthcare system, 
hospitals, clinicians, manufacturers, drug companies, payers, 
and we as Americans, contribute to the growth and healthcare 
costs and all need to be called upon to reduce these costs. Out 
of every dollar the Nation spends on healthcare, less than one 
penny goes to health plan profits. Isn't it time to ask, what 
are we going to do about the other 9 cents? Unfortunately, the 
deals made with the drug companies, hospitals, physician 
groups, and labor unions left the legislative proposals 
considered thus far without the most important part, the core 
solution for lower cost, higher quality healthcare.
    Rising healthcare costs frustrate all of us. It is a 
serious problem facing the country that deserves not only a 
serious discussion but meaningful action. WellPoint is eager to 
continue to participate in both. While it may be tempting to 
shift the blame to insurers for rising healthcare costs, to do 
so would be the triumph of sound bites over substance. Insurers 
are among the least profitable part of the healthcare system 
and the part that helps the most in making a meaningful 
reduction in healthcare costs. Insurance industry margins are 
dwarfed by the margins of others in healthcare. Real reform 
needs to focus on the areas where systematic savings could be 
realized.
    The elephant in the room is the growth of healthcare 
spending. Despite the attention we have garnered in this 
debate, we are the tail on the elephant, and we need to address 
the elephant.
    Thank you for the opportunity to be here today. This is a 
critical time for our country and for the healthcare debate, 
and I look forward to discussing with you ways in which we can 
work together to control rising healthcare costs.
    [The prepared statement of Ms. Braly follows:]


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Mr. Stupak. Thank you, Ms. Braly. Ms. Miller.
    Ms. Miller. I have no prepared statement.
    Mr. Stupak. Oh, you're not going to do a--OK. Well, let me 
ask this question. Let me ask about WellPoint's motivations and 
increasing premiums. I have sort of mentioned it and others 
have mentioned it. WellPoint's executives, and in a way, Ms. 
Braly, you asserted the profits were not a motivating factor in 
raising the premiums in California. In written testimony you 
indicated that you were disappointed that the critics cited 
profits as a primary reason that companies were increasing the 
cost of premiums.
    So let me ask you this. Right there is a document book on 
Tab 13. Please take a look at Tab 13 if we could put it up on 
the screen.
    [Slide shown.]
    Mr. Stupak. It is an email that was sent on October 7. It 
is in response to a voice mail--and in fact, I think you are 
the one who left the message, senior corporate actuarial wrote 
the average increase is 23 percent and is intended to return 
California to a target profit of 7 percent versus 5 percent 
this year.
    So my question is, were you attempting to raise profits to 
7 percent then in California by increasing the premiums? Was 
that the purpose behind this email?
    Ms. Braly. I think Cindy Miller was going to respond to 
that because the email----
    Mr. Stupak. It was to her, right.
    Ms. Miller. Yes, it is important to understand that that 
email was during the process of setting the rates, and it only 
refers to part of our California individual business. I think 
it makes reference to the fact that we had a 5 percent profit 
and are in that block.
    Mr. Stupak. In the previous year, right?
    Ms. Miller. In 2009. That in fact did not turn out to be 
the case. We lost money in the individual market in 2009 on our 
California business, and the profit that we have targeted in 
the rate increases that we have asked to implement for 2010 is 
less than 2 percent.
    Mr. Stupak. But the email basically says we have got to get 
the 7 percent if--got to increase our premium 7 percent so we 
can add that 7 percent profit. We have got to increase our 
premiums, right?
    Ms. Miller. The email was sent on October 7, the rates 
weren't filed until November 7th, and experience on that 
block----
    Mr. Stupak. Well, let me ask you----
    Ms. Miller [continuing]. And the medical claims continued 
to escalate more than we anticipated----
    Mr. Stupak. Sure. Let me ask you one about November 22 then 
if it was filed on November 7. Go to Tab number 22. On it, it 
is an email of November 2, and then you said you filed on 
November 7 from Brian Curley, WellPoint's Regional Vice 
President and Actuarial wrote, Note, we are asking for premiums 
that would put us 40 million favorable. One week earlier, Mr. 
Curley informed Brian Sassi, the President and CEO of 
WellPoint's Consumer Business is that if we get the increases 
on time, we will see an op gain upside of 30 million after 
downgrades and rate cap.
    I guess my concern is we say publicly we are not increasing 
rates to increase our profits, but yet, these emails sort of 
indicate that you have to have a minimum increase in order to 
maintain profit. Go ahead.
    Ms. Miller. Well, again, it is important to remember what I 
just said which is the lost money in the individual market in 
California in 2009, and that is not a sustainable business 
market. So certainly we are talking about profit increases in 
absolute dollars, but again, when you look at the profit margin 
that is built into the rates for 2010, it is less than a 2 
percent profit margin.
    Mr. Stupak. Well, OK, but look, we have seen your internal 
corporate documents that you used a variety of accounting 
mechanisms to sort of manipulate the profit figures. Look, we 
have seen at least five different accounting measures used to 
describe profits. The methods include pre-tax income, post-tax 
revenue, operating gains, underwriting margins and profits. If 
I remember correctly, WellPoint, at the end of 2009 in the last 
quarter, the last 90 days, their profit was $2.7 billion or 
something like that, right?
    Ms. Braly. Well, let me speak to that because the fourth 
quarter of '09 was the quarter in which we sold our pharmacy 
benefit management company. That is a company we had had and 
invested in for years, and our belief was that by selling that 
company and partnering with Express Scripts which is a pharmacy 
benefit management company, we could do the important thing 
that many of these panelists described which is getting lower-
cost drugs for our members by that combination. So if----
    Mr. Stupak. Great.
    Ms. Braly. And those earnings now are, you know, no longer 
part of our company because we have sold that. And so when you 
look at our total earnings for 2009 and look at our net margin 
which is an appropriate measure to look against other elements, 
we were at 4.8 percent. That was our margin----
    Mr. Stupak. That was your margin? What does that equal in 
real dollars in 2009?
    Ms. Braly. That was about $2.385 billion.
    Mr. Stupak. OK. 2.8 billion, that was your profit in 2009 
which is a year that everyone would consider was a horrible 
year economically in this country and hopefully 2010 will be 
better. But what I am concerned about is our hardworking 
Americans are asking to increase their premiums to the wealth 
of WellPoint's investors. I mean, look it, yesterday you had 
the hearing yesterday in California, right, on the rate 
increase and Anthem President Margolin, is that how you say 
that, defended the profit margin during the hearing and he is 
saying it should be about--the 5 percent is a figure that he 
said would be acceptable. In fact, he said we have no interest 
in profit beyond the range I have described to you, 2.5 to 5 
percent is reasonable in their appropriate profits. But when 
your policyholders are taking a hit like the last panel see, 
everyone of them were self-employed, they are individual, you 
know. It is that group, basically self-employed people, they 
have taken 30, 40, 50 percent hit, but it seems like every year 
you have got to have a profit. Is it reasonable to expect every 
year companies are going to have profits and we got to have at 
least 2.5? It would be great if we could guarantee every 
business to have 2.5 to 5 percent profit. What the heck, you 
are at 7 percent or more.
    Ms. Braly. You know, actually, over a 5-year period, our 
profit margin has declined. We continue to get more efficient 
as a company and as a business, and we are working hard to 
reduce healthcare costs and improve access to high-quality, 
affordable healthcare.
    So it is important to be a business that sustains, that we 
have an appropriate profit, and we think a 4.8 percent margin 
on a relative basis is very efficient. And when you look at 
that compared to others in the healthcare system, you know, 
biotech companies are 23 percent profits, pharmaceutical 
companies are in the 20 percent profit. We have a chart in our 
written testimony describing that even community-based hospital 
margins are in the 6.9 percent profit margin. So we are part of 
the healthcare system that is striving to get to more 
affordable healthcare for all our members.
    Mr. Stupak. The only way we will get more affordable is to 
knock off these profits that are being paid for by the average 
American. I mean, I don't mind you making a profit, but at the 
end of the year, 2009, a horrible year, you still made $2.-
something billion and that is not enough?
    Ms. Braly. And we serve 34 million Americans across the 
country, and we feel that it is appropriate for our business to 
be sustained so that we can be there for those members when 
they incur those healthcare costs. We want to be solvent as an 
organization and be able to continue to invest in ways in which 
we can get to a more affordable, higher-quality healthcare 
equation.
    Mr. Stupak. Sure, and I don't mean to inject the healthcare 
debate in this whole deal, that is why so many of us believe in 
a public option. You are killing the average consumer. They 
can't afford anymore. We have got to put an option up there. 
Today we are doing the antitrust exemption. Hopefully that 
helps.
    My time is way over. Mr. Burgess, please, for questions.
    Mr. Burgess. Thank you. I appreciate you all being here 
today. I appreciate having an actual actuary here at the table. 
It is a shame that we don't have the state actuary, and you all 
could compare notes because I presume you prepared some 
actuarial findings and presented those to the State Board of 
Insurance, is that correct?
    Ms. Miller. Yes, my team does, by law, is required to do 
rate filings in which we certify that the rates meet the law 
and are reasonable. In addition, we have an independent, 
outside actuarial firm, Milliman, probably the most respected 
firm in the country, also verify that they thought our rates 
were reasonable and appropriate and met the law.
    Mr. Burgess. And those went to state regulators?
    Ms. Miller. Yes.
    Mr. Burgess. When was that?
    Ms. Miller. Our filing was on November 7. The independent 
actuary reviewed the filing in mid-November and issued a letter 
on December 15 that they believed that rates were appropriate.
    Mr. Burgess. Is it possible for you to provide this 
Committee with a copy of that letter? Do we have that in our 
evidence binder somewhere?
    Ms. Miller. I believe so.
    Mr. Burgess. We could get a copy of that letter or we 
already have it?
    Mr. Stupak. We may already have it. It is not in the 
evidence binder.
    Mr. Burgess. OK. And then what was the response of the 
state regulators to the actuarial information they were 
provided? That this was outrageous? How dare you?
    Ms. Miller. By law, the state is supposed to respond within 
30 days to the filing. We heard nothing from the state until 
actually Christmas Eve, and on Christmas Eve we got several 
questions from the actuary about one of the products, our Smart 
Sense product, and the filing for that. We responded to those 
questions, and then we heard nothing else from the Department 
of Insurance until the news broke of the rate increases in the 
LA Times.
    Mr. Burgess. I see. You know, you had to know this was 
going to be trouble. I mean, a 39 percent rate increase in this 
climate? You know what we have been doing up here the last 
year?
    Ms. Braly. Yes.
    Mr. Burgess. You know what is happening at the White House 
tomorrow?
    Ms. Braly. Yes.
    Mr. Burgess. You knew this was going to be trouble.
    Ms. Braly. Yes.
    Mr. Burgess. You did the report on Christmas Eve. You know 
what else happened on Christmas Eve? They passed a bill in the 
Senate. So you knew the landscape into which you were entering, 
correct?
    Ms. Braly. Correct.
    Mr. Burgess. Did you make a judgment as to whether or not 
this was the best time to do this?
    Ms. Braly. You know, it is always a challenging issue to 
raise rates. And to address the issue that many have brought 
up, you know, our desire is to have more members. Our goal is 
to continue to serve members and have more members. It is not 
easy. It is difficult to continue to have to raise rates. The 
process was under way clearly. The rates had been filed. We had 
had this certification also----
    Mr. Burgess. I don't want to interrupt you, but I am going 
to run out of time. You see how mean he is?
    On Tab 18, where we talked about the rate increases, we 
also talked in an email about a cushion to allow for 
negotiation, margin expansion. Kind of sounds like what we do 
with appropriators. We ask for twice what we need, hoping they 
will give us half of what we ask for. So did you file this with 
a cushion, this 39 percent?
    Ms. Braly. Cindy can speak to that specifically. I think it 
is important to note that when you look at the individual 
products in California, because of our participation in the 
HIPAA and what is called the Mr. Met graduate program, a high-
risk pool option. We did have in 2009 a $68.9 loss when 
combined with the individuals who buy the products in the open 
market. Our loss was about $10 million altogether. So when we 
price this product for the rates for 2010 that were filed with 
the Department, they assumed we would have a margin of about 
2.4 percent or an after-tax margin of about 1.4 percent.
    Mr. Stupak. And you feel that even though you knew you were 
going to get significant negative publicity because of those 
facts, you would be able to justify what the rates were?
    Ms. Braly. The rates, on average----
    Mr. Stupak. You can do it. You can add publicity, right?
    Ms. Braly. It is a difficult situation, and even to break 
even, the rates would have been in the 20s in terms of overall 
average, the overall average. And we were concerned which is 
why we also capped the rates at the top and at 39 percent 
because we did not want rates for individuals to go in excess 
of that cap.
    Mr. Burgess. I am going to run out of time, and I must ask 
because it has come up already. Do you have doctors who are 
unconscionably raising their rates in your network? My 
experience with most insurance companies was we took what you 
gave us. We really didn't negotiate. With all respect to the 
Chairman, Medicare sets the rates, you guys come in and say we 
will pay a percentage of Medicare, take it or leave it and that 
is the end of it. That is the so-called negotiation that we 
went through. Is California substantially different from Texas?
    Ms. Braly. No, we can talk about what the trend is with the 
physician trend versus the hospital trend is a much more 
significant driver, and the pharmaceutical trend is a much more 
significant driver than that.
    Mr. Burgess. Thank you. The hospital trend and the 
pharmaceutical trend is a much more significant driver.
    Ms. Braly. Right.
    Mr. Burgess. If you took all physician reimbursement off 
the table, you would have a one-time savings of from what I 
read anywhere between 5 and 18 percent. It is not the biggest 
driver in your book of business, I suspect.
    Ms. Braly. We think the physician trend is around 6 percent 
in California.
    Mr. Burgess. That sounds----
    Ms. Braly. And so the hospital trend is 10 and the pharmacy 
trend is 13.
    Mr. Burgess. And of course, all of the expenditures do flow 
through generally through the physician, that is, if a 
physician doesn't write the order, write the script, the 
patient doesn't get the treatment or the prescription.
    So although they are a very small part of the actual cash 
outlay, they do control or they tend to be a driver or a 
constrictor of costs. I have always wondered why we try to 
ratchet down physician payments. Doctors are normal people that 
you say we are going to ratchet it down? We try to do more to 
catch up, and therefore we see more patients, order more tests, 
write more prescriptions just because our throughput has to 
increase in order to pay our overhead. Have you guys ever 
looked at a corporate level of maybe if we pay doctors 
differently we could actually get control of this cost curve?
    Ms. Braly. Absolutely. We think the partnership with 
doctors is the key to changing the reimbursement system so that 
we are paying for outcomes rather than----
    Mr. Burgess. Now, you know that there is a representative 
in California named Pete Stark who will not allow that sort of 
interaction to occur, right? That partnership between doctors, 
insurers and hospitals?
    Ms. Braly. I think that is an important part of the future 
of the reimbursement system, to partner with doctors, to look 
at different ways to reimburse----
    Mr. Burgess. But we can't. Under Stark laws, we will all go 
to jail. So that is off the table. Is there any other way we 
could do that?
    Ms. Braly. We think there are elements around medical 
malpractice reform where if doctors understood that they would 
be protected if they followed evidence-based medicine, that 
question that you raised, you know, the most expensive thing in 
healthcare is the pen and the doctor's hand. If we can make the 
doctors, you know, protected and be willing to and be able to 
focus on evidence-based medicine, then I think we will get at 
those procedures or those tests or diagnostic tools that may be 
used successfully.
    Mr. Burgess. Yes, unfortunately that is one thing that is 
off the table in tomorrow's discussion. We really aren't going 
to talk about tort reform, I don't think, other than a very 
superficial way. We will say caps, they will say no way and 
that will be the end of the discussion. Thank you.
    Mr. Stupak. Thank you, Mr. Burgess. Maybe we can get a 
chance to get another round in. Mr. Chairman, Mr. Waxman.
    Mr. Waxman. Thank you very much, Mr. Stupak. California has 
a tort reform law. In fact, we have the law that the American 
Medical Association would like to have for the rest of the 
country. Are you saying that that has held down costs in 
California?
    Ms. Braly. Well, clearly the costs in California continue 
to rise, and we have a number of issues that relate to 
healthcare costs in California. For example, we have seen----
    Mr. Waxman. Well, I don't want to know all the issues, but 
you said if we had a medical malpractice system, that would be 
one way to hold down costs. California has one. It hasn't been 
sufficient to hold down costs to keep you from raising the 
premiums, you asked for 25 percent increase. In your written 
statement you said raising our premium was not something we 
wanted to do. So your senior executives as WellPoint determined 
that a rate increase averaging approximately 25 percent was 
necessary, is that right?
    Ms. Braly. That is correct.
    Mr. Waxman. OK. Now, I would like to ask you about a 
document produced from your internal files at WellPoint. On 
October 24, 2009, Mr. Shane, a Senior WellPoint Actuary, 
emailed Mr. Sassi, the head of WellPoint's Individual Market 
Division, and let me put up that email.
    [Slide]
    Mr. Waxman. Mr. Shane writes that WellPoint executive must 
reach agreement on a filing strategy quickly, specifically in 
the area of do we file with a cushion, allow for negotiations, 
or do we file at a lower level that does not allow for 
negotiations. This email says that you were considering filing 
a rate increase that was padded because you expected California 
to reduce your proposed increase. Is that an accurate 
conclusion to reach?
    Ms. Braly. I don't believe so, and Cindy described these 
emails--earlier in the process there was a question of what the 
medical trend would be. What we filed did have a margin of 2.4 
percent on an operating margin basis or 1.4 percent. And it 
reflected the trend that we were experiencing in California. So 
there was not a cushion in the rate that was filed.
    Mr. Waxman. Well, it is hard to understand these words 
differently because the words say a cushion allowed for 
negotiation. You decided you needed 25 percent, but it sounds 
like you were willing to go to 20 percent. There was a 
presentation prepared for your board of directors. The 
presentation outlined WellPoint's strategic plan for individual 
line of business for 2010, and let me put that slide up on the 
board.
    [Slide]
    Mr. Waxman. This slide is titled, Key Assumption: 
Individual Pricing. It distinguishes between your rate ask and 
the actual rate increase you are assuming for 2010. And 
according to this slide, the 2010 rate ask is listed as 25 
percent to 26 percent, but the assumed 2010 rate increase is 
just 20 percent. This seems to say that you were asking for a 
25 percent increase but expected to see that lowered to 20 
percent through negotiations. That sounds like padding. How do 
you respond?
    Ms. Miller. I will respond to that since my team was 
responsible for the rate filings. It is important to note that 
this was prepared before the rate filing, before the rates were 
finalized, and it recognized the fact, the political reality 
that departments of insurance have political pressures and 
often will change rates in response to those pressures. What 
turned out to happen is that medical costs continue to escalate 
through the latter part, the last three months of 2009, and the 
25 percent rate increase became necessary to achieve, as Angela 
said, a profit margin of less than 2 percent on an after-tax 
basis.
    Mr. Waxman. Well, it sounds like what you are saying is you 
prepared to ask for a rate higher than what you needed as a 
negotiating tool. You could have anticipated rates were going 
to go up, and you had to make a decision. You wanted an average 
increase of 15 percent, but you were really looking at an 
average increase of 20 percent. You can see the document says 
assumes 2-month approval delay, lowering rate increase 5 
percent. This says exactly the same thing as a presentation to 
your board. It says that you are asking for more than you need 
because you build in a large cushion. Here is what I think is 
going on. You are raising your rates far above what is 
necessary. You are trying to squeeze every dollar of profit you 
can out of policyholders in California and across the Nation, 
and at a time when families across the Nation are struggling to 
pay their bills, you are trying to charge them inflated rates 
that pad your profits and support the salaries and the trips 
and the treats and everything else.
    Ms. Braly. Mr. Chairman, we have described in 2009 in the 
individual business in California, our prices were not adequate 
to cover the losses, for example, in guarantee issue part of 
the products that are required to be covered, and we had a 
loss. And our pricing that was filed and certified or reviewed 
and evaluated by other actuaries confirmed that the----
    Mr. Waxman. Other actuaries, meaning the state actuaries?
    Ms. Braly. Milliman came in specifically at our request to 
evaluate----
    Mr. Waxman. You indicated you were trying to be more 
efficient to hold down these costs. Is the biggest deficiency 
that you produce trying to shift people onto plans where they 
have to come up with more money out of pocket so that you don't 
have to pay that amount?
    Ms. Braly. No. In fact, we could be making less money when 
those members shift to products that have less benefits. Our 
goal is to make sure that we have product offerings for----
    Mr. Waxman. Well, we heard three witnesses this morning as 
did you. You were sitting here. All three of them seemed 
reasonably healthy, but all three of them were told they were 
going to get a 39 percent increase, not the average of 20 or 
25, 39 percent increase. But they were in luck. They could get 
a plan that would cost less, they just have to pay more out of 
pocket for their drugs because you wouldn't cover the brand-
name drugs or they would have to come up with greater or higher 
deductibles. Is that efficient?
    Ms. Braly. What we try to do----
    Mr. Waxman. Is that inefficiency?
    Ms. Braly [continuing]. Is we try to make sure that the 
customer can get access to a product that they want and afford 
and provides them the benefits they need. For example, last 
year----
    Mr. Waxman. Well, they would like to have what they have 
been paying for and not have to have increases every year that 
they have been seeing.
    Ms. Braly. And as reflected, as the pool of insured changes 
because sometimes healthy younger individuals leave and we have 
people that stay in the pool that are more expensive. The cost 
overall of the pool continues to go up. That is the critical--
--
    Mr. Waxman. So you would argue that we need a pool that 
includes everybody, is that right?
    Ms. Braly. Correct, that is----
    Mr. Waxman. Therefore if you are pooling people together, 
then you don't need these individual risk analyses because you 
are spreading the cost. Is that what you are telling us?
    Ms. Braly. We are an advocate for reform that would include 
the elimination of preexisting conditions provided that there 
is a mechanism to keep everyone in the pool so that you don't 
have this phenomenon.
    Mr. Waxman. That is what the bill does that passed the 
house. That is what the bill does in the Senate. That is what 
the President has been calling for. Let us get everybody 
insured, and let us put them in a pool and then you spread the 
risk. What the individual insurance markets seem to be doing, 
if you have got an illness, you are not even going to be 
considered for consideration. If you are in the plan and you 
have got some illnesses, we are not going to drop you but we 
are going to shift you to another plan where you pay more money 
out of pocket. And you are individualizing insurance so that 
the individual has no leverage. They have to pay what you ask 
or drop down to something else.
    Ms. Braly. The actuary analysis is not based on an 
individual's health status. It is based on who is in the pool. 
But to your point about the healthcare reform, I think it is 
important. The concept and the goal was to eliminate 
preexisting and get everyone in the pool. But what happened in 
both of the bills that we have seen is that the effectiveness 
of keeping someone in the pool really fell apart as the 
legislation was moving forward. And the great concern is you 
wouldn't keep everyone in the pool because you don't have the 
right mechanisms in place to keep them in the pool and they 
would opt out.
    Mr. Waxman. What would you do to keep people in the pool?
    Ms. Braly. We would make sure that there was a continuous 
coverage requirement so if----
    Mr. Waxman. Somebody says I don't want insurance. What 
would you do? What would you do to that individual or family 
that says, I don't want to pay this. I can't afford it. I'm not 
going to pay it. What do you do to them?
    Ms. Braly. Right, and then there should be an enforceable 
and effective penalty of some sort that catches all individuals 
and a requirement to have continuous coverage because people 
jump in and out of coverage in Massachusetts where there is a 
mandate. They jump in, consume healthcare, dump their policy, 
jump out, and the costs continue to escalate because they dealt 
with coverage and not cost.
    Mr. Waxman. I think we tried in that House bill to cover 
everybody and require that everybody get coverage, spread the 
costs out, and we didn't get a lot of support from the 
insurance industry for the House bill, let alone the Senate 
bill.
    I have certainly gone way beyond my time. Thank you, Mr. 
Chairman.
    Mr. Stupak. Ms. Schakowsky for questions, please.
    Ms. Schakowsky. First, Mr. Chairman, on behalf of 
Representative Eshoo, I would like to add to the record a 
letter that she wrote February 11, to Ms. Angela Braly. Could I 
have unanimous consent?
    Mr. Stupak. Without objection--let us see it first.
    Ms. Schakowsky. OK. I will hand it to you.
    [The information was unavailable at the time of printing.]
    Ms. Schakowsky. In the letter that representative Eshoo 
wrote, she quotes from your Anthem Blue Cross unit in an email 
message urging your employees to oppose healthcare reform, and 
it is reported to have said that reform proposals would ``cause 
tens of millions of Americans to lose their private coverage. 
And she makes the point that the 39 percent rate increase flies 
in the face of this concern for those who would supposedly lose 
coverage. I wonder if you could respond to that.
    Ms. Braly. I would be happy to. We are very concerned with 
the legislation that was being proposed because we didn't feel 
like it addressed that concept of addressing, getting everyone 
in the pool, and as a result, that, with combined with some 
other changes that were proposed, including changing the age 
rating. Our actuarial analysis, which we shared publicly and 
have available on our Web site----
    Ms. Schakowsky. What is the age rating you use?
    Ms. Braly. It varies by state, and Cindy could probably 
give the details around California, but constricting the age 
restrictions, we found that individuals, young individuals, in 
California would see in excess of 106 percent rate increase and 
that was before trend. So that would be in addition to the 
rising healthcare costs that we saw as well.
    Ms. Schakowsky. You began by talking about how happy you 
were to be here to talk about rate increases. I want to remind 
you the name of this hearing. It is Premium Increases by Anthem 
Blue Cross and the Individual Health Insurance Market. And what 
I actually expected was not for you to come and lecture us 
about what we should put in our bill but actually to explain to 
us, and a good start would have been to answer some of the 
concerns. I don't know if you were here for the testimony of 
Jeremy Arnold who talked about a whopping 74 percent increase 
that he has experienced or Julie Henriksen who I just 
calculated pays $24,504 a year. And if I am correct, if I heard 
you correctly, you never even met the deductible. So you paid 
this amount, but you really didn't get any benefit from the 
health insurance because you didn't meet the deductible, or 
respond, and it would be nice if you would because she wrote 
you letters talking about how she realized for months she had 
been paying for a costly, unnecessary benefit, switch plans, 
and finally did get a letter that her premiums were going to be 
raised 38 percent, although she could change to a lesser 
coverage and pay only 16 percent. Isn't that fabulous?
    I do have a couple of questions, but I want to tell you 
something, that I think that a 39 percent rate increase at a 
time when people, Americans, are losing their jobs, losing 
their healthcare, is so incredibly audacious, so irresponsible. 
You know, we see these lavish retreat places. I would be 
interested to know what your salary is as the CEO, the 
incredible CEO salaries. I don't know how many people it was 
said that make over $1 million a year at your company. How much 
money do you make?
    Ms. Braly. My salary is $1.1 million. I receive stock 
compensation. I received stock compensation with the value of 
$8.5 million, and last year an annual incentive payment of 
$73,000.
    Ms. Schakowsky. Well, of course, it makes sense then that 
you would need a big rate increase now that you told us that. 
You said in your written testimony that Anthem Blue Cross 
profit margin is in line with and below that of many of your 
competitors. Can you name any California competitors who have 
raised their rates up to 39 percent?
    Ms. Braly. Yes, we believe that a number of our competitors 
have raise rates. In fact, in the individual market, there are 
products that are available. Our products are competitively 
priced and in many cases lower priced than many of our 
competitors, both for-profit and not-for-profit----
    Ms. Schakowsky. They got approved by the commission for 
more than----
    Ms. Braly. They are outstanding and available now.
    Ms. Schakowsky [continuing]. 39 percent?
    Ms. Braly. We are a very efficient company on a relative 
basis, and our administrative costs continue to go down. And so 
we do have very competitive rates in the marketplace. Many 
times they are less expensive than other products that are 
currently available. And there are a number of competitors in 
California, and our rates are quite competitive in the 
marketplace.
    If I could address your earlier question----
    Ms. Schakowsky. No. I have another question. Has your 
company met the legal requirement to use 70 percent of premiums 
collected in the individual market for the payment of medical 
claims?
    Ms. Braly. Yes, we have submitted those filings and believe 
they are compliant with the requirement. You have to keep in 
mind that product is the product sold in a commercial market, 
that the losses that are incurred in the HIPAA and the 
Mistermet graduate program are borne in that marketplace as 
well. So in the end, the individual marketplace lost money in 
2009, and would produce an after-tax return of 1.4 percent----
    Ms. Schakowsky. So when you figure your profits, you don't 
figure it across the company? You look just at the profits made 
or lost in the individual market?
    Ms. Braly. Yes, and there are some very important reasons 
actuarially to make sure you price the product for the costs 
that are being incurred in those products. Cindy, you might 
talk about the potential----
    Ms. Schakowsky. No, I don't want to hear about it.
    Ms. Braly [continuing]. Adverse----
    Ms. Schakowsky. I don't want to hear because it seems to me 
that when you have a company that is providing not widgets and 
not some luxury item but healthcare, that it might make sense 
to look across the whole company to see what kind of profits 
because people who are in the individual market are often least 
able to be able to come up with these very high rates.
    What would you think about an 80 or 85 percent medical loss 
ratio?
    Ms. Braly. You know, our medical loss ratio as an 
enterprise is 82.6 for 2009. And you know, one thing that is 
really important about the individual market, we in some 
states, where there has been regulation that really tries to 
restrict the ability to raise rates, all the competition has 
left. We are Blue Cross/Blue Shield. If you look at Maine, in 
1993 there were 11 carriers in Maine offering products in the 
individual market. Now there is us and another company that is 
not a major national competitor because we are Blue Cross and 
we have geography licensure, and we don't want to leave the 
individual market. And so we need to make sure that it is a 
viable marketplace for our customers so we can continue to 
cover their costs. So as they incur healthcare costs, we are 
there to provide and pay for those costs.
    Ms. Schakowsky. I yield back.
    Mr. Stupak. Nothing to yield. Let me go to Mr. Welch of 
Vermont for questioning.
    Mr. Welch. Thank you very much, Mr. Chairman. Ms. Braly, on 
our last panel we did hear from some Anthem policyholders who 
have had very high rate increases. Two of the policyholders had 
premiums that were being raised 38 percent. The third had a 
rate notification increase to 30 percent. All of those were 
markedly higher than the average increase that WellPoint has 
reported publicly. And the current rate increases put the 
policyholder in a tough position. They can drop insurance 
altogether or try to get a much less comprehensive policy. And 
I would like to show you and Ms. Miller a document that 
suggests that these rate increases in fact could be much higher 
in the future. You can find this chart at Tab o7 of the 
document binder. And this, as you know, is a WellPoint internal 
analysis of the potential rate increases which was included as 
part of the individual leadership pricing memo, a document 
providing recommendations and analysis about the individual 
market in California. And I would like to put this document on 
the screen. Do we have that document up?
    [Slide]
    Mr. Welch. OK. Thank you. Ms. Miller, as WellPoint's Chief 
Actuary, I want to make certain I understand the three 
scenarios proposed by WellPoint officials in this document. 
Scenario one, and I don't think this is on the screen, appears 
to propose that WellPoint make no change in SAFs or rate 
increase caps, right?
    Ms. Miller. That is correct.
    Mr. Welch. And then scenario two appears to propose a 
reduction in the rate caps by 2 percent after accounting for 
age. So am I reading that correctly?
    Ms. Miller. Yes.
    Mr. Welch. And then scenario three which is the focus of 
attention here, that is the chart that caught my attention. It 
appears to consider the possibility of removing rate increase 
caps altogether, and the document states, and I quote, ``Remove 
SAFs completely.'' And then below that header is a chart that 
shows that if WellPoint in fact implemented this program, 
taking away the rate caps, removing them entirely for certain 
plans, over 27,000 policyholders would be subject to a 228.4 
percent increase in their monthly premiums. Is that right?
    Ms. Miller. I don't see the number of policyholders that 
you are referencing on the one that is in our book. But I do 
see the 228 percent.
    Mr. Welch. OK. So if we took the caps off, under your 
internal analysis, if I were a WellPoint policyholder subject 
to this situation, I could be receiving a 228 percent increase 
in my premium cost?
    Ms. Miller. Yes, I would like to point out that these are 
labeled scenarios, not proposals. When we do our actuarial 
work, you start by looking at the rate increases that are 
necessary for----
    Mr. Welch. The scenario----
    Ms. Miller. It could have been the starting point, and it 
is meant to illustrate that if we didn't cap, these would be 
the increases. We did in fact cap the rates. This was not a 
proposal. It was just in order to illustrate, you know, how 
dramatic some of the increases would be if we had to do that.
    Mr. Welch. I get that. You are saying that if you had caps 
off, by your analysis, you might actually in order to maintain 
using Ms. Braly language, a viable marketplace would require 
you to raise my premium by 228 percent. That is where we are 
headed. I mean, this is the problem. That's where we are 
headed.
    Do you consider, Ms. Braly, that it is a viable marketplace 
if a machine tool company who has got 15 workers that they have 
been loyal to and the workers have been loyal to them, and they 
are trying to hang onto the jobs and they are trying to hang 
onto health benefits, they get a notice in the mail saying that 
they are going to get a 228 percent premium increase. Is that 
sustainable?
    Ms. Braly. Absolutely not, which is why we need to focus on 
the rising health care costs, and we think we are an important 
part of that mechanism in healthcare.
    Mr. Welch. Well, you know, that is pretty self-serving. I 
mean, if your medical loss ratio is you said about 82 percent, 
you know, just years ago the medical loss ratio was in the 
range of 95 percent. So there a business model that is working 
for you as an insurer so that you can pay your salaries, 
maintain your bottom line, but it is coming at great expense to 
other people.
    Ms. Braly. Our administrative expense, you know, really 
does go to focus on disease management. We have 2500 nurses who 
work with our customers to make sure they are getting the 
benefits----
    Mr. Welch. You know, Ms. Braly, I don't mean to interrupt. 
We have got a situation here that your own internal analysis 
suggest the obvious conclusion. It is not sustainable. I mean, 
if left to strict marketplace interpretation of what is 
``market viability'', that being as I understand it, what you 
would have to charge in order to maintain the financial 
solvency of your business. If that requires charging that 
machine tool company 228 percent, that is not a market that is 
viable to anybody who is on the receiving end of that premium 
rate increase. So it suggests that the market model that we 
have is fundamentally broken.
    Ms. Braly. We agree that we need a sustainable solution to 
this difficult problem, particularly in the individual market 
where we see these issues extremely in terms of the rate 
increases which is why we are an advocate----
    Mr. Welch. So basically you are in agreement with the 
proposition that I just made, that the current insurance model 
is fundamentally broken where the premiums are going up 
potentially 228 percent?
    Ms. Braly. I think we need to continue to create an 
opportunity for both consumers to be better purchasers of 
healthcare and understand the dynamics which we are doing 
through investment, as well as continue to innovate around how 
we fundamentally change the----
    Mr. Welch. When you say the consumer can be a better 
purchaser of healthcare, when you send out your premium notice, 
whether it is 40 percent or potentially 228 percent, and when 
someone calls, do you negotiate the rate for them?
    Ms. Braly. We have a mechanism where we do work with our 
customers to make sure that they can get another product 
potentially that they can afford or that has benefits that they 
want or need or not the benefits that they don't want----
    Mr. Welch. How can you--literally, I mean, again, I am 
not----
    Mr. Stupak. Go ahead, finish it up, and then that is going 
to be it.
    Mr. Welch. Well, I think the point has been made here. 
Thank you, Mr. Chairman.
    Mr. Stupak. Thank you, Mr. Welch. Ms. Capps for questions, 
please? Thank you for being here today, too.
    Mrs. Capps. Thank you, Mr. Chairman, it is an honor to be 
with your Subcommittee. I see a couple of the members of the 
previous panel. Before I address the current panel, I just want 
to say thank you for being such wonderful witnesses. You spoke 
for a lot of my constituents. I represent a district on the 
central coast of California, and their stories are so similar 
to yours, and they were very eloquent. I had to leave, and so I 
wasn't able to say that to you and allow you to expound even 
more.
    But to this panel, listening to a couple of my colleagues 
and your responses too them just makes the case for me as one 
member of Congress that we really do need a lot more 
competition within the health insurance market.
    Here is a story from one of my constituents, in a quote. 
``We as many others have received a notice from Anthem that our 
health insurance premium will increase by 30 percent starting 
March 1. My husband and I are both self-employed. We currently 
afford a PPO with a 5 deductible. And now Anthem, being so 
understanding, is offering a $7,500 deductible. If anything 
serious happens to our health, we lose everything to pay our 
medical bills, even though we technically have insurance.'' 
Here is another constituent. ``I am a 61-year-old male with 
individual health insurance from Anthem Blue Cross. I just 
received a notice of a rate increase from $616 a month to $881 
a month.'' Another says this. ``The premium on my Anthem Blue 
Cross health insurance policy is going up from $545 per month 
to $712 as of March 1. I want you to be aware,'' she writes to 
me, ``of this 30 percent hike in insurance rates.
    Ms. Braly, these are hardworking people, I know, who have 
no choice but to purchase health insurance on the individual 
market. Yet it doesn't seem like they get much for it. You 
claim you must raise prices in order to make up for healthy 
people who drop out of the system. But isn't it true that you 
have long engaged in the practice of rescission? I am well 
aware that Anthem has been fined for doing that in years past. 
And knowing that it may well drop me as a consumer who, in the 
even that I would become sick, is certainly not an attractive 
enticement for me to help as a healthy customer to join forces 
so that you can help to keep your costs down. You don't market 
yourselves very well. At a time when your company is bringing 
in record profits, but when the rest of our economy is 
suffering, I want to know what steps you are going to take now 
to make quality health insurance products affordable to the 
people like my constituents who want to be responsible and want 
to purchase health insurance but just can't do that. Do you 
want to respond quickly? I have another----
    Ms. Braly. I would. Thank you. Thank you for the 
opportunity to talk about what we are doing to try to make 
healthcare premiums more affordable. For example, when we 
negotiate with hospitals in California, our goal is to have 
zero increases. Often those hospitals come to us requesting a 
40-percent increase, and if there is not competition among 
hospitals, the regulars have said that it is inappropriate for 
us to terminate those hospitals from our network because then 
we would have an access problem. So as a result, we don't have 
the ability to, you know, not agree to those very high rate 
increases form the hospitals. So we are going to continue to 
fight on behalf of our customers to make sure that the 
healthcare they are receiving is affordable and high quality. 
And it is a difficult fight. It is one that we keep doing. It 
is why we sold our pharmacy benefit management company so we 
could get access to lower cost drugs because those costs are 
driving the overall increase in----
    Mrs. Capps. So you are shifting the blame to the hospitals 
pretty much. Just summarizing.
    Ms. Braly. We are working together to make sure we can 
address that.
    Mrs. Capps. There is nothing within your own system that 
you can find any flaws with.
    Ms. Braly. We continue to work on our efficiency. In fact, 
if you look at our administrative efficiency ratio, we continue 
to improve our efficiency as an organization, while we provide 
more services in terms of getting to that underlying healthcare 
cost. We will continue to do that.
    Mrs. Capps. I am going to just again address the topic that 
has come up. I saw slides shown of the places where you hold 
your retreats. This is a sticking point. It is not the whole 
story, but it is one that because it is so visible, it is 
pretty galling for people who have had to sacrifice their 
vacations now for the past two or three years because of the 
economy and what it is doing to their personal lives. And yet--
and I am going to finish and then I am going to give you the 
rest of the time to respond. You have continued to make these 
retreats a part of your working relationship and offering these 
to your employees. Consumers are making sacrifices in order to 
hold onto their health insurance as the premiums go up and then 
as they face being denied. These retreats hold more sway with 
your company than the health and well-being of your 
subscribers, and I will allow you any seconds I have left to--
--
    Ms. Braly. Yes, those meetings have been characterized as 
retreats for our associates, and that is incorrect. Those 
meetings that were described are meetings that we have with our 
customers, meetings----
    Mrs. Capps. Which customers?
    Ms. Braly. Often I meet quarterly with representatives for 
our customers, our customer advisory groups and----
    Mrs. Capps. Who are those people?
    Ms. Braly. They are representatives from our customers, so 
business people who buy the benefits on behalf of group 
customers----
    Mrs. Capps. So you are selling your benefits at those 
lavish resorts?
    Ms. Braly. We are meeting with--brokers and agents. You 
heard one of the panelists say she was going to work with her 
agent to understand what her options are.
    Mrs. Capps. Well, that is where her agent was when she was 
trying to get a hold of her.
    Ms. Braly. We make sure that our agents and brokers 
consultants and customers know what our benefits are, know what 
plans and services we can provide to them. We do some----
    Mrs. Capps. And you justified that cost as you are raising 
the premiums?
    Ms. Braly. No, we continue to focus on making sure we are 
more efficient. We do need to meet with people that are agents, 
brokers and customers. We find that they provide input to us in 
terms of how we improve the services and benefits that we 
provide to--in the case of----
    Mrs. Capps. Do you ever meet with your premium holders? Do 
you ever talk with them?
    Ms. Braly. I do, and I am delighted to, and I appreciate 
the opportunity when I get. And yes, I----
    Mrs. Capps. Did you hear their stories in addition to the 
stories you heard this morning?
    Ms. Braly. It is a challenge, believe me. We are on their 
side. We want to----
    Mrs. Capps. They don't feel like it.
    Ms. Braly. And we want them to understand there is so much 
misinformation about what is driving these premium increases. 
And I think it is important for people to understand the 
margins that are available to pharmaceutical companies and in 
hospitals and where we stand on a relative basis because we are 
fighting every day to make sure we can make their health 
benefits more afford able.
    Mrs. Capps. Thank you, Mr. Chairman.
    Mr. Stupak. Thank you. There was a request earlier that a 
letter dated February 11, 2010, from Anna Eshoo, member of this 
Committee and Member of Congress, to Ms. Braly be entered in 
record. Without objection, it will be entered.
    Second round of questions, Mr. Waxman.
    Mr. Waxman. Thank you, Mr. Chairman. You have said a couple 
of times, you want to make healthcare services for your 
beneficiaries. You want to provide more services for them. You 
want to provide more efficient services for them. You want to 
provide good services for them. Is that what you have been 
saying?
    Ms. Braly. Yes.
    Mr. Waxman. You see that as your role?
    Ms. Braly. We see it as a critical role, for us to get them 
access to affordable quality healthcare. And we, by providing 
services that we do, we think that creates real value for the 
customer.
    Mr. Waxman. Well, some of these documents paint a different 
picture. There is a document that is titled WellPoint 
individual 2010 plan. Opportunities not reflected in the 
forecast. It is a business plan, and under this business plan 
there is a section called risk management, and it says, our 
medical loss ratios should improve as we eliminate subsidies 
and other risk management initiatives. And then you have a 
number of initiatives. One of the issues is to take preexisting 
waiting periods and adjust them to be either 12 months or the 
legal maximum if less. So you want to make sure--they have to 
wait, if they wait they have a preexisting condition, to wait 
as long as the maximum will allow. Secondly, reinstatements 
will only be allowed for a period of 60 days after termination 
and will require underwriting and payment of back premiums. So 
that is going to make it more difficult for people to get back 
into getting access to this good quality care.
    Does WellPoint have initiatives to reduce the amount of 
premium dollars that are used to pay for medical claims?
    Ms. Braly. We have a number of initiatives to try to reduce 
medical costs, period. And then----
    Mr. Waxman. Well, how about reduce, not just medical costs, 
but medical services?
    Ms. Braly. We want to make sure that our members get access 
to the quality care they need at the right setting at the right 
time. So if we are avoiding a fraudulent expense or an 
unnecessary expense, yes, we want to----
    Mr. Waxman. Well, not fraudulent or unnecessary. You are 
saying that people have preexisting conditions. You are going 
to make them wait as long as possible before they can get care 
and----
    Ms. Braly. No, I was talking----
    Mr. Waxman [continuing]. There is another document, let me 
put it up on the screen. It is Tab 14.
    [Slide]
    Mr. Waxman. In this document, WellPoint executives 
identified key issues confronting the individual market, and 
they stated, lack of attention to risk management, decreased 
ability to use preexisting claim denials and rescind policies 
and maternity policy have led to our first-year loss ratios 
climbing from less than 50 percent 5 years ago to over 65 
percent. So these documents seem to indicate that senior 
executives are actively considering steps to reduce the amount 
of premium benefits that are used to pay for medical claims. If 
you are going to reduce payment for claims, you are reducing 
payment for claims for legitimate medical services.
    Ms. Miller. We are trying to make sure that the pool of 
members that we have is not disadvantaged in the marketplace. 
One of the reasons that our rates are going up so much in 2010 
is that healthy people are making a choice when faced with the 
hardship of the premium increases they are seeing. We recognize 
that there are hardships----
    Mr. Waxman. What does a medical loss ratio mean?
    Ms. Miller. What is medical loss ratio?
    Mr. Waxman. Yes, what does that mean?
    Ms. Miller. It is the claims, the medical claims paid, 
divided by the premium.
    Mr. Waxman. So you are trying to reduce the amount of 
claims you will pay for people in order to make sure that you 
are still within the medical loss ratio but you can reduce the 
claims for people, isn't that right?
    Ms. Miller. No, you can't reduce claims without changing 
your medical loss ratio. That is not possible.
    Mr. Waxman. OK. Well, if you are looking for ways in a 
business strategy to manage the risks, they all sound very 
nice, managing the risk. And then the ways you do that is to 
deny people access to care so you don't have to pay for that 
care for a longer period of time. That sounds like you want to 
make sure that you have got less money going into paying for 
care.
    Ms. Miller. No, specifically in the individual market in 
California, there is a minimum loss ratio requirement that we 
comply with. In fact, in the HIPAA guarantee issue products 
that we described, the medical loss ratios or medical cost 
ratios exceed by far the premium increases that we can----
    Mr. Waxman. The reason that you have a medical loss ratio 
is we want to guarantee that insurance companies are using 
premium dollars to pay for medical care for the customers and 
not for overhead, corporate expenses, and profits.
    Ms. Miller. Which is why our----
    Mr. Waxman. You have to balance that out. But it sounds 
like your people were looking at business strategies to reduce 
the amount of payment of the premium dollars for the medical 
care for the customers.
    Ms. Braly. Actually, if we take some of those risk 
management ideas, we can potentially reduce the cost for the 
overall pool and therefore not have such significant----
    Mr. Waxman. But for the individual involved, that 
individual is not going to have access to more efficient care. 
They are not going to have access to good services, they are 
not going to have access at all because you are going to hold 
down the cost for the overall pool. But that individual is 
going to have to go without or pay for the services that you 
wouldn't otherwise pay for.
    Ms. Braly. And that is one of the critical elements about 
our reform. If an individual doesn't buy his or her policy when 
they are well and there is an underwritten market, then if we 
allow them, like we do in some markets where we have guarantee 
issue, like New York and Maine, to wait until they are sick to 
buy the policy, then they won't buy the policy----
    Mr. Waxman. Nobody wants to do that----
    Ms. Braly [continuing]. Until they are sick.
    Mr. Waxman [continuing]. But you have got people covered, 
and your business--and you can't drop them because the law 
won't let you drop them.
    Ms. Braly. That is correct, and we don't want to.
    Mr. Waxman. So you have got people covered, and then you 
want to shift more costs onto them and use more of the premiums 
for overhead instead of for services. What I think we need is 
meaningful health reform to guarantee that the insurance 
companies are using premium dollars to pay for medical care for 
the customers and not for the overhead, corporate expenses and 
profits. What is the bill, what do we have? We have 80 percent 
requirement that the money collected by premiums be used to pay 
for health insurance claims.
    Ms. Braly. Right.
    Mr. Waxman. You are at 85 percent. You don't do that now, 
do you?
    Ms. Braly. We are at 82.6 percent. I want to address that 
question, though, too. You know, every administrative dollar 
that we spend, we want to produce a lower cost of care as a 
result of that. So we make investments in things like----
    Mr. Waxman. You don't produce a lower cost of care, you 
produce a certain amount of--to meet the ratio, a certain 
amount to make sure that you are meeting your expenses and your 
profits. But people are being denied care, and that is why I 
think health insurance reform is so necessary, and I dispute 
your statement, although I don't have time to go into it, that 
this bill does not bring more people into the pool. And 
individual has no power to deal with you, but if they are 
pooled together with others, then those people have the 
opportunity under healthcare legislation to say we want to make 
sure that 85 percent of the money that you collect from us pays 
our healthcare claims, not more money going to retreats and 
expenses and salaries. We want it for that purpose, and then 
you can spread the costs out. Thank you, Mr. Chairman.
    Mr. Stupak. Mr. Burgess for questions, please.
    Mr. Burgess. Thank you. Let me just clarify. On the AMA, 
American Medical Association site last night, and of course 
they are not your biggest ally or fan, but they reported a 
medical loss ratio for WellPoint at 84.8 percent which is right 
at that 85 percent figure that was mandated in the bill. Is 
that for the whole company and it is different in California?
    Ms. Braly. They may be looking at statutory financial 
statements versus gap. The gap statements show for year-end. We 
were at 82.6 which is enterprise-wide. So I am not sure exactly 
where they are at 84.8, but there are many products in which--
--
    Mr. Burgess. They Tweeted it, so I know it is right.
    Ms. Braly. Right.
    Mr. Burgess. Let me ask you a question. I thought Blue 
Cross was non-profit. We have all this discussion of profits 
today, I always thought when I was in practice that Blue Cross 
was a non-profit.
    Ms. Braly. There are many companies who have Blue Cross 
licenses. We are a for-profit company, but as we have 
described, the not-for-profit companies continue to have 
margins sometimes in excess of ours because we have come 
together as former Blue Cross independent states, and we have 
created a lot of efficiency and scale at WellPoint. So we are a 
more efficient Blue Cross plan but we are for-profit Blue Cross 
plan.
    Mr. Burgess. One of the areas, and I am sorry Mr. Waxman is 
gone, but one of the areas where I disagree with Mr. Waxman but 
you agree with him is that we need a mandate, an enforceable 
mandate, a rigid mandate in this healthcare bill. Mandates are 
an anathema in a free society, and my submission is that they 
do not work. We have a tremendous mandate right now with the 
IRS. Everybody knows you have got to pay your income taxes, and 
if you don't, you may not be exactly sure of the penalties but 
you know it is bad and you don't want to find out. And our 
compliance with the IRS is about 85 percent. Well, we have 15 
percent of the people uninsured in a voluntary system in this 
country, so I don't know how much more compliance we get by 
going to a mandate, and yet we ask honest people to give up 
significant freedoms. When we did the Medicare Part D program 
several years ago, and part of my job as a member of Congress 
was to go out and talk to people about the changes coming to 
Medicare, and I can't tell you the number of people who would 
tell me that you can't make me take that prescription drug 
benefit. No, ma'am, I am not here to make you take it, it is 
there for you if you want it. Well, you can't make me take it. 
I said, no, that is right. You can do what you are doing right 
now, and that is oK. You can't make me take it. Well, what are 
you doing right now? Well, I don't have drug coverage. You can 
keep it. You can keep that non-coverage as long as you want. 
Now, there was a penalty involved, and we got a lot of 
criticism for that, that if you didn't sign up in the open 
enrollment period which at that point was six months after the 
initiation, that people would pay a 10-percent premium for 
coming into the system if you will after they got sick because 
we were trying to make the benefit look more like insurance and 
less like an entitlement. And you know, the story with Medicare 
Part D, although it is not perfect is that it has provided a 
benefit now to 92 or 93 percent of seniors have a credible 
prescription drug coverage of some sort and 92 or 93 percent 
are satisfied or very satisfied. So that is a pretty good track 
record. Now, we did that without a mandate, and the model that 
we should follow, in my opinion, is that model which is to 
create programs people want. If you get a mandate, which is a 
program you want, but if you get a mandate, then there is not 
reason for you to try to compete for any of these subscribers' 
business. And yet, how much better would it be if you said, 
well, we are going to create programs that people want and will 
want to stay with us over time. I wish I could have a 
longitudinal relationship with my health insurance company. I 
have with my car insurance company since I was 18 years old, 
but health insurance, you shop around every year to get the 
best deal when you are in small business or your employer shops 
around for the best deal, and as a consequence, you don't get 
to keep your insurer over time. One of the reasons I went with 
a high deductible policy so I could have a longitudinal 
relationship with my insurance company. We are far better off 
if we construct programs that people want, rather than telling 
them what they have to have.
    Now, you have got, and I think it has already come up, that 
increases in the California individual market can be as much as 
106 percent under the confines of the House-passed bill, and 
that is a pretty significant figure. Now, Mr. Stupak is 
correct, none of the benefits start for 4 years, so it might 
not happen to you right away but at some point, the cost of 
those benefits is going to go up, and the truth is, no one 
really knows because we do these budget scores but no one 
really knows. Look how far off the mark we were when we passed 
Medicare in 1965 with what it costs us today. And Mr. Waxman 
talks about your medical loss ratio, look at our unfunded 
liability in Medicare and Medicaid. I mean, that is what is 
staring people in the face. Yes, we got a lot of problems here 
we need to fix. They are complex problems that are really hard 
to do. We need to do them. We have got a much bigger problem 
staring us in the face which is the unfunded obligation that we 
have with our existing public options if you will that those 
bills are going to come due before any of us really had 
planned. That is really where we need to be focusing right now. 
We are not doing our part very well right now with Medicare and 
Medicaid. Before 50 percent of the market that we pay for right 
now, we are asking to go to 75 percent at the federal level. 
That is a big ask for the American people. That is why we are 
getting so much pushback on this bill. They don't think we are 
doing a good job with what we have got now, and they don't want 
to give us another 25 percent of that market.
    Thank you, Mr. Chairman. I will yield back.
    Mr. Stupak. Thank you, Mr. Burgess. Let me just sort of 
wrap up a couple questions if I may. Ms. Braly, you indicated 
that the drivers for this increase, the 39 percent increase you 
are seeking, doctors were 6 percent, hospital was 4 percent I 
think you said, and pharmaceutical, 13 percent, right?
    Ms. Braly. No, hospital trend is about 10 percent, the 
physician trend is 6 and the pharmaceutical trend is about 13 
for California for the 2010 rates.
    Mr. Stupak. OK, so that is about 29 percent. So does that 
leave 10 percent then for administrative costs?
    Ms. Braly. No, Cindy can take you through the different 
elements that went into the price increases.
    Mr. Stupak. No, I am just trying to keep this simple so 
average lay people like me can understand how you come up with 
39 percent if your projected, and these are all projected, 
right, Doctor, 6 percent you said, hospital 10 percent, 
pharmaceutical 13. What is the other driver then?
    Ms. Braly. The trend, I am describing the trend in each of 
those elements.
    Mr. Stupak. OK. So your 39 percent, you are looking for 
sort of a guesstimation what you are going to need?
    Ms. Braly. No, Cindy can give you more detail in terms of 
exactly how we got to the 39 percent because you have rising 
healthcare costs. You also have what we call adverse 
selection----
    Mr. Stupak. Well, wait a minute.
    Ms. Braly [continuing]. Due to the fact that a lot of the--
--
    Mr. Stupak. Ms. Miller has submitted for the record, but 
what is the driver then, doctor, pharmaceutical, hospital. What 
else?
    Ms. Braly. Correct. We are also having adverse selection 
meaning the healthy people and their premium is going away.
    Mr. Stupak. How many healthy people did you have last year 
in your individual policies?
    Ms. Braly. You know, we look at the whole pool----
    Mr. Stupak. No, just how many people did you have?
    Ms. Braly. We had 800,000 members.
    Mr. Stupak. How many did you have this year in your 
individual?
    Ms. Braly. You know, we were expecting 25,000 on the 
aggregate basis between the two regulated companies less that 
we will have about 25,000.
    Mr. Stupak. OK, but the individual policy, how many less 
are you going to have?
    Ms. Braly. About 25,000 less we think, we are projecting.
    Mr. Stupak. OK.
    Ms. Braly. What happens in the individual product----
    Mr. Stupak. No, I understand.
    Ms. Braly [continuing]. People are likely to come in and 
out because they go into group policies.
    Mr. Stupak. And because they can't afford it.
    Ms. Braly. Pardon?
    Mr. Stupak. And because they can't afford it. A lot of 
people in this country every year go bare because they just 
can't afford it----
    Ms. Braly. Which is a loss----
    Mr. Stupak [continuing]. Whether they are in a group, they 
get unemployed or whatever it might be.
    Ms. Braly. We want to have that customer and we want that 
customer to have coverage.
    Mr. Stupak. OK. You indicated earlier for 2009 your 
corporate profits were 2.3, almost 2.4 billion because you sold 
a management company, right?
    Ms. Braly. Well, we sold a PBM, and we had operating 
earnings as well.
    Mr. Stupak. OK. What was your company profit then in 2008?
    Ms. Braly. Our profit margin was 4.8 percent on a 
relatively similar base. So actually, you know, the margin 
was--well, 4.6 in '08, 4.8 is our overall margin in 2009.
    Mr. Stupak. So that is about the same as 2009 then? So what 
would that be in dollar signs then in 2008?
    Ms. Braly. I am not sure exactly what. We probably had $62 
billion worth of revenue total. So not a dissimilar number.
    Mr. Stupak. So under 2.4?
    Ms. Braly. We can get you the exact----
    Mr. Stupak. So 2010 then, you anticipate again you are 
going to be around $15 billion?
    Ms. Braly. $15 billion? I'm sorry.
    Mr. Stupak. Yes, isn't that what you said?
    Ms. Braly. No.
    Mr. Stupak. OK. Go ahead.
    Ms. Braly. No, in 2010----
    Mr. Stupak. 2010, where do you think you are going to be 
profit wise?
    Ms. Braly. We are actually going to have lower operating 
earnings in 2010. It is a reflection of the economy and the 
loss of our membership primarily in-
    Mr. Stupak. But your profit will probably be what, 4.8 
percent?
    Ms. Braly. We expect it to be in the same range 
potentially, yes.
    Mr. Stupak. So you are already expecting at least for the 
last 3 years, your profit will be the same?
    Ms. Braly. It has been pretty steady in that range, 4.6, 
4.8 would be appropriate, which on a relative basis, the other 
parts of healthcare and many other industries is very modest.
    Mr. Stupak. Well, you may think it is modest, but if you 
are looking at a 39 percent increase or in Michigan when they 
proposed 56 percent increase, that is not very modest to folks.
    Ms. Braly. Yes, we are not Blue Cross/Blue Shield of 
Michigan.
    Mr. Stupak. I know you are not. I know you are not, but 
Michigan Blue Cross/Blue Shield is a non-profit, you are a non-
profit.
    Ms. Braly. No, we are for-profit.
    Mr. Stupak. You are a for-profit. I am sorry. You are in 
Maine, though, right, you said? And they have had double-digit 
increase. You mentioned earlier about Maine being one of the 
dominant players.
    Ms. Braly. Maine is one of the places where we are one of 
the few players left in the individual market because others 
have left the market.
    Mr. Stupak. Right, and less players in the market, the 
easier to manipulate that market just because----
    Ms. Braly. No, in fact----
    Mr. Stupak [continuing]. Of your sheer size.
    Ms. Braly. No, in fact what has happened is because the 
regulatory environment in Maine and particularly in the 
individual market was regulated the way it was, everyone left 
except for us. We are a Blue Cross. We are not going to leave. 
We are going to stay in our geography and continue to serve our 
members.
    Mr. Stupak. Well, you know, is expected to be 23 percent 
this year, right?
    Ms. Braly. We filed for a rate increase in Maine. The Maine 
regulator has denied that, and we are in litigation with the 
Main regulators about the ability, as provided in the statute, 
to have an appropriate margin.
    Mr. Stupak. Well, how about in Maine, is your doctor costs 
there 6 percent or is it less in Maine?
    Ms. Braly. In Maine, the doctor costs are very high, and on 
a relative basis compared to other parts of the country, it is 
one of the most highly----
    Mr. Stupak. Yes, but is it 6 percent like California? I'm 
looking for your drivers in Maine.
    Ms. Braly. No, in fact we have a----
    Mr. Stupak. You have your drivers in California which you 
said was doctors was 6 percent, hospital, 10 percent----
    Ms. Miller. The driver----
    Mr. Stupak [continuing]. Pharmaceutical 13----
    Ms. Miller. I can take that question, Mr. Chairman.
    Mr. Stupak [continuing]. That is 29.
    Ms. Miller. The driver----
    Mr. Stupak. And so in Maine, what is it there?
    Ms. Miller. Off the top of my head, I don't know the exact 
trends in Maine. The driver in Maine is that it is guaranteed 
issue, and there is no requirement for people----
    Mr. Stupak. Well, guaranteed issue----
    Ms. Miller. The people wait until they are sick to purchase 
coverage, and it drives up the cost of care. Maine has one of 
the highest healthcare costs in the country.
    Mr. Stupak. Guaranteed issue is you are guaranteed to 
present the policy and then it is up to the consumer whether or 
not they can afford it. We call it purging in the business 
world----
    Ms. Miller. Absolutely, and what happens then----
    Mr. Stupak [continuing]. And in the individual market it is 
rescission.
    Ms. Miller. Only people who know they are going to incur 
healthcare costs more than the premium buy the policy, and that 
is not a sustainable business model. And that is why all the 
other insurers left the state because they were forced to lose 
money in that business.
    Mr. Stupak. That is not what the last panel said. They 
don't take insurance because they expect to gain more than what 
they paid. In fact, our last----
    Ms. Miller. No----
    Mr. Stupak [continuing]. Panel, they basically pay and 
never really access it because you have such high deductibles 
and co-pays and everything else.
    Ms. Miller. Well, obviously there are people who are using 
the coverage because otherwise, our medical loss ratio would be 
zero. I mean, that is insurance. You buy it when you don't need 
it so that it will be there when you do need it, and if 
everybody waits until they need it to buy it, we result in the 
situation that we have today in the individual marketplace 
where we have escalating insurance costs, which is again why we 
have talked about the fact that we need sustainable healthcare 
reform. We need to address not just the insurance market 
reforms which we agree need to occur, but you also have to 
address the underlying cost of care. We are only charging the 
costs that come through to us.
    Mr. Stupak. Well, I still don't see how you justify 39 
percent. I got up to 29 percent in your drivers and your 
trend----
    Ms. Miller. Thirty-nine percent was the high. The average 
was 25.
    Mr. Stupak. Right.
    Ms. Braly. And Cindy, do you want to talk about each 
element----
    Mr. Stupak. It is amazing. We had three witnesses say they 
are all at 39 percent. But you are saying the average----
    Ms. Miller. I don't know how the panelists were selected, 
and again, we don't like raising our rates that much. We know 
it is a hardship on these people, but at the end of the day, if 
you----
    Mr. Stupak. Do you believe that you can actually raise your 
rates where no one is going to want to take your policy 
anymore?
    Ms. Miller. Pardon?
    Mr. Stupak. Do you think you are going to finally get to 
the point where basically you are killing the goose that laid 
the golden egg? No one is going to be able to afford you?
    Ms. Braly. You know it is really an issue that we have got 
to get to the underlying costs of care because we want access 
to healthcare. There are wonderful advances, wonderful 
technologies, and we want to make sure that we continue to have 
access and our customers continue to have access, and it needs 
to be affordable. And so we have to think about how----
    Mr. Stupak. Do you believe there is going to be a point 
where we can no longer afford it, individually?
    Ms. Braly. I think we as human beings greatly value our 
access to healthcare which is why we continue.
    Mr. Stupak. I agree, and every family has to make a value 
judgment. Can I afford it today or not? So when my rates go up 
39 percent, as our first panel said, we look at it and pretty 
soon it is going to be, can I afford it anymore or do I just 
drop it and hope I don't get sick?
    Ms. Braly. Which is why we are in the market saying we have 
to get to reducing healthcare costs, making sure people aren't 
getting unnecessary procedures or redundant procedures. We play 
that important role in healthcare. To eliminate us from the 
process eliminates the opportunity to get to that value 
equation. Without us----
    Mr. Stupak. I don't disagree with you, but for the average 
family, when they are sitting there and they are saying my 
rates just went up 39 percent or if you want to use your words, 
the average in your case, 25 percent, and man, I can't afford 
it anymore, it is as much as my house payment as the first 
panel said, and then I look at the end of the year and darn it, 
you made $2.358 billion and the salaries are in millions of 
dollars for the executives, how can I sustain that because I am 
the one who paid it, not them. And you are getting to the point 
where no one can afford it.
    Ms. Braly. And we are serving 34 million Americans across 
the country, and our goal and desire is to try to get for them 
affordable health benefits that they can continue to access, 
the quality care, the drugs that they need and want----
    Mr. Stupak. And it is not working when I came to Congress, 
like our first panel, small businesspeople, 64 percent of 
people had health insurance, would buy it. Now we are down to 
about 34 percent. That is why we have to do something on 
healthcare in this country because the cost is killing us.
    Ms. Braly. And that is why we----
    Mr. Stupak. And we are just going way over and arguing and 
probably getting outside the scope of this hearing.
    Mr. Burgess. Mr. Chairman, may I ask one last question of 
our witness?
    Mr. Stupak. Sure.
    Mr. Burgess. We have a vote in a few minutes on repeal of 
McCarren-Ferguson. Do you have an opinion as to whether or not 
that is going to bring down healthcare costs?
    Ms. Braly. You know, belief is it is not going to affect 
healthcare costs one way or another.
    Mr. Burgess. Is it going to affect your business? Is there 
any good reason not to do it?
    Ms. Braly. The unintended consequence that we worry about 
for the McCarren-Ferguson repeal is that there are initiatives 
to share data, with the evolution of health IT in particular. 
If we can address some of the quality opportunities through the 
sharing of data, we hate for those to be eliminated as part of 
this process.
    Mr. Burgess. But that would be true in anything, infection 
control ideas. Identifying and aggregating data is going to be 
critical in that.
    Ms. Braly. Exactly, and that is why as health IT advances 
and we are investing in that to make sure we can use that data 
as meaningful information, we would hate for that to be 
eliminated as an unintended consequence of that repeal.
    Mr. Burgess. What about professional baseball? Would there 
be any unintended consequences to----
    Ms. Braly. No consequence to us.
    Mr. Stupak. That is the Curt Flood case. You don't even 
want to go there. With that, let me conclude this panel and 
thank you both for being here and thank you for your testimony 
today.
    Ms. Braly. Thank you.
    Ms. Miller. Thank you.
    Mr. Stupak. That concludes all questioning. I want to thank 
all of our witnesses for coming today and for their testimony. 
The Committee rules provide that members have 10 days to submit 
additional questions for the record. I ask unanimous consent 
that the contents of our document binder be entered in the 
record, provided the Committee staff may redact any information 
that is business proprietary, relates to privacy concerns, or 
is law enforcement sensitive. Without objection, our document 
binder will be entered into the record.
    Also, I ask unanimous consent, the letter from Mr. Dingell 
to the National Association of Insurance Commissioners and 
their response dated February 17, 2007, be submitted as part of 
the record. Without objection, documents will be entered in the 
record for Mr. Dingell.
    [The information appears at the conclusion of the hearing.]
    Mr. Stupak. That concludes our hearing. This meeting of the 
Subcommittee is adjourned. Thank you all again.
    [Whereupon, at 2:12 p.m., the Subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]


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