WellPoint to re-label administrative costs as "medical care": Consumer Watchdog calls for probe

Message to Investors Says Insurer Will Re-Label Overhead, Administrative Costs as "Medical Care" to Meet New Law's Requirement to Cut Overhead

Consumer Watchdog called on the Obama Administration and the Department of Health and Human Services today to probe insurance giant WellPoint Inc. in light of an electronic message to investors describing how it would simply re-label administrative costs as "medical care" in response to the new health reform law. The message follows revelations that WellPoint, parent company of Anthem Blue Cross, also intentionally padded already huge premium increases in California, just in case regulators demanded reductions.

"WellPoint keeps proving that it will sniff for every loophole and play every game to keep profits high without becoming more efficient or helping control overall medical costs," said Jerry Flanagan, medical policy director of Consumer Watchdog. "This manipulation of how the insurer defines medical costs is what we predicted would happen, but it's surprising that WellPoint acted so swiftly. The Department of Health and Human Services hasn't even issued its definitions of what constitutes a medical expenditure."

The health reform law enacted last week requires that insurers spend at least 80% of customers' premiums on medical care in the individual insurance market, and 85% in the employer/group market.

In the message to investors sent March 17 via Dow Jones wires, WellPoint said:

"WellPoint's (WLP) medical cost ratio should rise and its overhead-expense ratio decline this year as the insurer reclassifies various types of costs. Disease management, medical management and a nurse hotline, for example, 'are being reclassified because they represent additional benefits provided to our members,' a representative says. They'll now be part of the medical cost ratio, the percentage of premium revenue used to pay members' health-care costs. These are claims-related costs incurred to improve member health and medical outcomes, WLP says. Accounting rules allow the changes, which better align MCR with anticipated health reform guidelines, Stifel Nicolaus says."

Consumer Watchdog predicted that WellPoint will lobby for definitions that exactly match the company's revised idea of what constitutes medical care.

"The addition of 'medical management' -- a grab bag that may include purely administrative units whose job is to deny as much expensive care as possible, and may include doctor billing -- shows Blue Cross's intent to relabel first and defend it later," said Flanagan.

WellPoint emails obtained by a Congressional committee earlier this year showed company executives adding an extra 5% to premium increases up to 39% in California, so it could "offer" a 5% reduction if regulators protested.

In a letter earlier this month to California insurance Commissioner Steve Poizner, Consumer Watchdog also accused WellPoint of laundering profits through other WellPoint subsidiaries and sending excess amounts to the parent company.

Consumer Watchdog called for the Department of Health and Human Services to investigate WellPoint's reclassification of services, particularly the undefined "medical management" category and nurse hotlines, which could include the enforcer-nurses who conduct utilization reviews aimed at reducing the utilization of medical care.