What happens when you fill an administration with people who have never worked in the private sector? You get idiocy like this:
Indianapolis-based WellPoint Inc. has drawn a fierce backlash from Capitol Hill and the White House by posting premium increases for some customers in its California Anthem Blue Cross plan. California officials say 700,000 households face increases averaging 25 percent overall and as high as 39 percent for some.
The company was forced to postpone the hikes while [Health and Human Services Secretary Kathleen] Sebelius ordered an inquiry and other lawmakers publicly railed against the company. . . Sebelius suggested the increases were unwarranted and needed to be checked.
“While we don’t want companies to be insolvent … to suggest that this is entirely in line with even health care costs … these profits are wildly excessive, are way over anybody’s estimate,” Sebelius said Thursday.
In a letter last week to Anthem Blue Cross, Sebelius said the increases were “difficult to understand” given that WellPoint earned $2.7 billion in the last quarter of 2009.
If Sebelius had ever worked in the private sector, she might understand that WellPoint’s overall profit has no bearing on what the price of a particular policy should be. In a for-profit enterprise, each endeavor must pay for itself. A for-profit company doesn’t use its profits in one area to subsidize another area that is losing the company money. Yes, sometimes a company will subsidize an endeavor because they think it will be profitable in the future, or because it generates some non-pecuniary benefit like good PR, but that doesn’t change the overall point. Each endeavor must justify itself; businesses don’t allow one area to hemorrhage money just because another area is doing well.
It turns out that WellPoint made nearly all of its profit from a one-time transaction, and is actually losing money on individual health plans:
The bulk of its fourth-quarter profits, $2.2 billion, came from the sale of a business, and WellPoint told Sebelius that it actually suffered a loss in 2009 for the unit selling individual policies to people not covered through their jobs.
WellPoint needs to make this part of its business profitable or shut it down. Sebelius may be able to prevent WellPoint’s price increase, but it can’t stop them from leaving the market. That’s what’s going to happen if the government won’t let them charge a rate that turns a profit.
POSTSCRIPT: In light of Sebelius’s moral preening over WellPoint’s “wildly excessive” profits, it’s worth remembering that she is a tax cheat and a demagogue.
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