Printed in The Wall Street Journal

February 18, 2010

The Democrats and their media allies have found a new insurance piñata: WellPoint and its recent health-premium price increases in California. This spat deserves more attention, because its real lesson is what will happen to health insurance costs around the country if ObamaCare passes.

WellPoint's California unit, Anthem Blue Cross, recently informed nearly 700,000 individual insurance customers of premium increases of up to 39%. President Obama jumped on the announcement, claiming in a pre-Superbowl TV interview that the hikes were a "portrait of the future if we don't do something now."

Health and Human Services Secretary Kathleen Sebelius quickly piled on by ordering a federal inquiry, claiming a company that made "$2.7 billion in the last quarter of 2009" could not "justify massive increases." Senate Majority Leader Harry Reid ripped WellPoint and other "greedy insurance companies that care more about profits than people." And right on cue, House baron Henry Waxman scheduled a hearing, where he will not blow kisses.

He ought to subpoena California's political class because Wellpoint's rate hikes are the direct result of the Golden State's insurance regulations—the kind that Democrats want to impose on all 50 states. Under federal Cobra rules, the unemployed are allowed to keep their job-related health benefits for 18 to 36 months. California then goes further and bars Anthem from dropping these customers even after they have exhausted Cobra. California also caps what Anthem can charge these post-Cobra customers.

Most other states direct these customers to high-risk pools that are partly subsidized, but California requires the individual market to absorb the customers and their costs. Even as California insurers have had to keep insuring these typically older and sicker patients, the recession has driven many younger, healthier policy holders to drop their insurance—leaving fewer customers to fund a more expensive insurance pool.

This explains why Anthem lost $58 million in California on its post-Cobra customers in 2009. If WellPoint didn't raise premiums amid these losses, it would soon be under assault from its shareholders, if not out of business.

This episode is a preview of the adverse selection that would happen nationwide if ObamaCare passes. The Democratic bills would control what insurers could charge and force them to take all comers, regardless of health status. These burdens were supposed to be made tolerable by requiring all Americans to buy insurance or face a penalty. Yet when this "individual mandate" proved to be unpopular, Congress watered it down so that younger customers would be able to pay the penalty knowing they can wait until they're sick to pay the more expensive premiums. The only way an insurer can make up for these higher costs is to raise premiums.

This is precisely what WellPoint predicted would happen when it released a detailed actuarial study in October showing that insurance costs would soar for millions of Americans under ObamaCare. The White House hasn't forgotten that study, or forgiven WellPoint for releasing it, which may explain the force of its current attacks.

As for WellPoint's profits, $2.2 billion of WellPoint's $2.7 billion fourth-quarter earnings came from the one-time sale of a subsidiary. After one-time items, WellPoint earned $2.92 billion last year, compared with $2.86 billion a year earlier. Anthem's profit margins are in line with its two largest nonprofit competitors in the state; its net income on a per-member-per-month basis in 2008 was $12.62, compared to Blue Shield's $13.22 and Kaiser's $18.45.

Anthem last year hired an independent actuarial firm that found its rates sound and necessary. The company presented its findings to California insurance commissioner Steve Poizner last November, who had a month to review the proposed increases and never objected. But recently amid the White House campaign, Mr. Poizner has joined the chorus claiming to be "skeptical" of the increases and demanding that Anthem postpone them while he conducts a review. Anthem has done so.

Mr. Poizner is a Republican running for governor, which proves that health-care political opportunism can be bipartisan.

This document is not intended to be authoritative, and its accuracy is not guaranteed. It is believed to be correct at the time of its printing. Any questions about official interpretations of the law should be directed to legal counsel.