Wellpoint sues Maine for 3% guaranteed profit.

[Feil]

(This also eliminates the "gold-plated bridge" argument--they have no incentive to raise costs because they're just getting a normal return, anyway).

This argument cannot possibly be valid when the way they want to get a normal return is by (continuously) raising costs such that real cost (adjusted for inflation) doubles every thirteen years (assuming an 18% average annual increase in costs and a 3% average inflation rate)....

[frogcurry]

100% last year + 18.5% increase = 118.5% of last years value. Of this 3.55% is needed to give a gross 3% profit margin on the total this year. So costs for this year with no profit should be ~115% of last years.
100% last year + 10.9% increase = 110.9%. Or 4% less, even with no profit margin allowed for.

I'm curious as to where the 4% difference came from, and whether its going to be significant. Past year profit margins were all well above 3% so possibly they built more margin into their desired increase.

[Zwinmar]

100% last year + 18.5% increase = 118.5% of last years value. Of this 3.55% is needed to give a gross 3% profit margin on the total this year. So costs for this year with no profit should be ~115% of last years.
100% last year + 10.9% increase = 110.9%. Or 4% less, even with no profit margin allowed for.

I'm curious as to where the 4% difference came from, and whether its going to be significant. Past year profit margins were all well above 3% so possibly they built more margin into their desired increase.

Here is the thing, they expect exponential growth rather than just a profit. Forgive me if I do this wrong I am not very good at math, and I think I did it wrong.

If 'n' equals the previous year then:

((n)118.5%)10.9%= the profit they get this year

[J]

Unfortunately Anthem is a privately held subsidiary of Wellpoint so I can't pull their annual reports to get an idea of their cashflow. However, I feel there's something fishy going on if the article is taken at face value. Anthem is said to be well-capitalized with a long history of profits, including the years since the start of the current recession. Now they claim they need an 18% rate hike across part of their product line to maintain a 3% profit, which by the way is lower than anything in recent years. My best guess is that revenue has dried up due to the recession, lots of people have lost their jobs and they just can't afford insurance anymore or they've cut back their coverage to the absolute bare minimum, leaving Anthem with a bit of a cashflow problem. But instead of carrying out layoffs and restructuring the company to better fit these economic times, they've kept operating as usual and decided to squeeze their customers for all they're worth to makeup for the shortfall in revenue. In other words; bad planning, got caught with pants down, now want government help like the rest of the insurance business.

[Master of Ossus]

(This also eliminates the "gold-plated bridge" argument--they have no incentive to raise costs because they're just getting a normal return, anyway).

This argument cannot possibly be valid when the way they want to get a normal return is by (continuously) raising costs such that real cost (adjusted for inflation) doubles every thirteen years (assuming an 18% average annual increase in costs and a 3% average inflation rate)....

I don't think you're understanding the concept here. They're asking for a 3% return on their costs--it has nothing to do with increases or decreases in the cost. Just, whatever their cost is in providing service, they should be allowed to set prices such that they have a 3% return on that cost. At such low returns, there's essentially no incentive to invest in this market, but they've probably asked for just enough such that they can continue to survive. The State of Maine is treating them as a utility. I agree that if the rate were something exorbitant then they would tend to invest more than they would otherwise, particularly since utilities tend to be safe investments, but to say that they should be allowed nothing for profit (which is what the state seems to be arguing) is not a reasonable position.