WellPoint CEO: Anthem Raising Rates an Average of 25% ‘Difficult’ But ‘Necessary’

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February 24, 2010 Wednesday 03:29 PM EST

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WellPoint CEO: Anthem Raising Rates an Average of 25% 'Difficult' But 'Necessary'

Jesse A Hamilton

WASHINGTON

The chief executive officer of WellPoint Inc., Angela Braly, absorbed the heated criticism of a series of politicians during a U.S. House subcommittee hearing on insurance rates sparked by increases announced by her company's Anthem Blue Cross of California. The increases would average 25% for customers in the individual market and would be capped at a 39% increase.

Braly testified that rate increases at Anthem are actuarially supported and reflect increases in medical care costs. These are factors, she said, "that we have been sounding the alarm bell about for years." From a customer's point of view, Braly said, "it is often the insurers who have to deliver the bad news."

Raising premiums was not something Anthem wanted to do, she told the Energy and Commerce Committee's subcommittee on oversight, "but we believe this was the most prudent choice, given the rising cost of care and the problems caused by many younger and healthier policyholders dropping or reducing their coverage during tough economic times."

Anthem's rates in the individual market were set to go up on March 1, but the controversy surrounding this move from California largest health insurer eventually led to Anthem agreeing to put the increase off for two months (BestWire, Feb. 16, 2010). At a Feb. 23 hearing before state lawmakers in California, the insurer said it would go forward with the rate increases, assuming the favorable conclusion of an ongoing state review.

"The Anthem Blue Cross profit margin in California is in line with and below that of many of our competitors," she said.

But Rep. Henry Waxman, D-Calif., chairman of the overall committee, accused Anthem of padding its rate increase with the expectation that the state would only permit a portion of it to go through. "You built in a large cushion," Waxman said. "You're trying to charge them inflated rates that pad your profits."

Cynthia Miller, WellPoint executive vice president and chief actuary, responded that the proposal "recognized the political reality" of facing state regulators that would be pressured to oppose increases.

Braly said it's hard to continue to have to raise rates but it's necessary to cover cost trends and adverse selection. "Even to break even, the rates would have been in the 20s," she said.

Rep. Bart Stupak, D-Mich., chairman of the subcommittee, said, "You're killing the average consumer. They can't afford any more."

Rep. Michael C. Burgess, R-Texas, said that Braly had to know the increase "was going to be trouble."

Committee Democrats argued that company e-mails demonstrated the company sought to increase its profit margin and move customers into less generous plans. A document from the committee majority questioned WellPoint executive compensation, pointing out that in 2008 WellPoint paid $115 million to 85 senior executives, compensating 39 executives more than $1 million each. Also, the document said, the company "spent over $27 million on 103 executive retreats."

This hearing also offered some preview of the debate expected at the White House-hosted summit on health care Feb. 25, in which the parties are being asked to look for compromises. "We've got to standardize insurance and make sure people have access to it," Waxman said at the hearing. "We'll see tomorrow whether we can look for common ground."

Braly repeatedly argued that reforming the health care system is necessary to curb ongoing rate increases. "Reform must go beyond the insurance marketplace to address system-wide challenges and associated costs," she said.

Most WellPoint insurers, including Anthem in California, have current Best's Financial Strength Ratings of A (Excellent).

Shares of WellPoint were trading at $60.07 a share on the afternoon of Feb. 24, up 1.88% from the previous close.

(Jesse A. Hamilton, Washington bureau manager: Jesse.Hamilton@ambest.com)

February 25, 2010

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