Insurers and Insurance and Insurance Regulators and Anthem and Health Care Costs and Health Care Reform and Executives and WellPoint and Health Insurance and Health Care & Life Sciences and Health Care & Insurance and Angela Braly

WellPoint CEO blames health costs for hikes

February 24, 2010

A major health insurer that wants to boost rates in California by up to 39 percent was trying to maximize profits by purging its sickest customers while spending millions on exorbitant salaries and retreats for its executives, congressional Democrats said Wednesday.

Rep. Henry Waxman, chairman of the House Energy and Commerce Committee, said at a hearing on WellPoint Inc. that his panel's investigators had received internal company documents showing that in 2008, 39 company executives received salaries of $1 million or more. And in 2007 and 2008, it spent $27 million for 103 executive retreats.

"Corporate executives at WellPoint are thriving, but its policyholders are paying the price," said Waxman, D-Calif.

WellPoint owns Anthem Blue Cross, which wants to raise rates on individual policy holders in California and blames those increases on rising medical costs.

In prepared testimony for the panel, Angela Braly, CEO of WellPoint Inc., blamed the increases on the growing price tags for hospital care and pharmaceuticals. She also cited the ailing economy, which has caused many younger, healthier people to save money by dropping coverage, leaving her company covering an older, sicker population.

"Raising our premiums was not something we wanted to do," Braly said. "But we believe this was the most prudent choice."

Braly's total compensation from WellPoint was nearly $10 million in 2008, according to IBJ research. Compensation information for 2009 is not yet available.

Anthem's rate boosts in California have made it a poster child for Democrats arguing that the nation's health system must be overhauled. Wednesday's hearing comes a day before President Barack Obama hosts bipartisan congressional leaders for a daylong, televised discussion of health care, a session he hopes will provide new momentum to Democrats' stalled legislation.

"This is a national problem," said Rep. Bart Stupak, D-Mich., who chairs the oversight subcommittee holding the hearing.

Republicans on the committee said little to defend Anthem, but noted the hearing's timing just before what Rep. Michael Burgess, R-Texas, called Obama's "six-hour photo op."

It also was occurring the same day the House planned to vote on legislation repealing the health insurance industry's exemption from federal antitrust laws. Obama and Democrats say the measure would help spur competition, but analysts say it would have little impact on how insurers do business because they already are regulated by states.

Democrats also invited some California residents to describe their experiences with Anthem.

In prepared testimony, Jeremy Arnold of Los Angeles said Anthem informed him last month that his rates would grow by 38 percent to $319 a month, which could force him to take a less expensive policy with higher deductibles and hope he doesn't get sick.

"Hope is not an adequate health care policy," Arnold said.

Braly expressed some sympathy.

"Clearly, we understand that rate increases create a challenge for many of our members," Braly said. "However, it is important to know that many of our members often have a choice of coverage."

She said the company was dismayed when the health overhaul debate in Washington turned into "an attack on the health insurance industry," which she said was "very misleading."

After its rate announcement generated criticism, Anthem said it was postponing the increase from March 1 until May 1 while it is reviewed by California regulators.

Anthem covers more than 8 million Californians, including about 800,000 who buy their policies directly. It is on those individually covered people that Anthem has proposed rate increases of up to 39 percent, though the company says the average increase is 25 percent — which the company says is in line with competitors.

Braly said the company lost $10 million on individually insured Californians last year.

In a report earlier this month, the Obama administration cited WellPoint's reported profit of $2.7 billion in the fourth quarter of last year as evidence that insurers' rate boosts need to be curbed.

But Braly cited a one-time sale of an asset and said the profit excluding that was $380 million after taxes. She said even if the company returned that profit entirely to its customers, they would each receive an average $5.13 per month.

Braly said the rate increases and growing costs show why a health overhaul is needed. She said the Democratic bills debated so far have been inadequate because they don't control the growth of medical costs.

"Changing how we finance health care without changing how we deliver health care is simply not sustainable," she said.

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