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Could WellPoint woes breathe life into health reform?

February 12, 2010

WellPoint Inc. has spent the week as Public Enemy No. 1 after President Obama called out the company for raising premiums on individual customers by as much as 39 percent.

The company’s political “tin ear”—as one Wall Street analyst put it—could reignite a push for health reform.

“If anything could, it would be something like this,” said Les Funtleyder, a health care stock analyst at Miller Tabak & Co. in New York.

But, more likely, hatred of WellPoint is only powerful enough to help pass small pieces of the now-languishing health bills in Congress. One example would be a cap on health insurer profits.

The larger health reform bills passed by the House and Senate late last year have languished for nearly a month now, with Democrats feuding over the best way forward. Many have declared the bills dead.

Obama and other Democratic leaders are trying to use WellPoint to rile up voters for one more push. Polls show that a majority of the public dislikes the bills in Congress, but large majorities want something done to fix the nation’s health care and insurance system.

“It could embolden the Democratic leadership,” Brian Vargus, a professor of political science at IUPUI, said of the outcry over WellPoint’s rate hike. But, he added, “My gut feeling is they’ll do something smaller.”

News of WellPoint’s premium increase for customers that buy insurance on their own, and not through their employers, surfaced last week in California. Obama trumpeted the maximum 39 percent increase in a Sunday television interview, right before the Super Bowl. Then he mentioned it again during a Tuesday press conference.

Obama’s health secretary, Kathleen Sebelius, wrote a letter to WellPoint demanding an explanation. House Democrats have scheduled a committee hearing for Feb. 24 and requested that WellPoint CEO Angela Braly come to explain her company’s rate hikes.

“Is this justifiable? We’re going to find out,” Funtleyder said, adding that he doubts the rate hike is entirely justified. “If it really was a justifiable business thing, they should have anticipated blowback in the political environment.”

Investors have so far been nonplussed by the news, Funtleyder said. But WellPoint's stock price has fallen 4 percent this week while the broader markets were flat. The company's shares now trade for about $59.35 apiece.

For its part, WellPoint defended its premium increases as the result of a bad economy that prompted many healthy customers to drop their insurance coverage, leaving the high medical costs of other members to be spread out over fewer customers.

“The result is an insured pool that uses significantly more per individual than under better economic times,” wrote Brian Sassi, WellPoint’s CEO of consumer business, in a letter to Sebelius. “This is turn leads to higher costs in the pool and to rate increases higher than general medical inflation.”

Sebelius wasn't appeased, telling the Associated Press "it remains difficult to understand" how premium increases of that size can be justified when WellPoint reported a $4.75 billion profit in the last quarter of 2009.

WellPoint also says its premium hikes included some increase due to its customer base aging. Excluding that effect, the premium increases ranged from 20 percent to 35 percent.

An independent actuary in California said WellPoint’s premium increases were justified by actuarial science. The same occurred in Indiana, where all premium increases are subject to actuarial review before they go into effect.

The Indiana Department of Insurance used an outside actuary to OK premium increases for WellPoint’s individual policies. Those new prices will take effect March 1.

“We feel like that process is protecting the consumer,” said Doug Webber, acting commissioner of the Indiana insurance department. “We think the system works.”

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