Braly's political skirmishes hurting insurer, critics say

Back to TopCommentsE-mailPrintBookmark and Share

When the directors of WellPoint Inc. picked Angela Braly three years ago as the company’s next CEO, they touted her experience and skills dealing with politicians and government regulators.

It hasn’t worked out so well.

WellPoint is now the poster child for health insurer bad behavior—credited in Washington with reviving a dead health reform bill the company opposed.

That bill includes numerous new restrictions on health insurers, including a key one that could sap more than $850 million from the company’s profits.

Now, with thousands of new regulations being written, Braly has staged a public feud with the president of the United States and his chief health regulator.

“I don’t know who’s advising them on the public relations strategy, but it’s been a disaster,” said Bob Laszewski, an insurance consultant in Alexandria, Va. “It’s hard to believe retrospectively in her expertise in public policy.”

And the trouble in Washington is by no means WellPoint’s only challenge. Braly’s tenure leading WellPoint has been full of storms: an exodus of management talent, high unemployment, byzantine computer systems that caused forecasting and claims processing snafus, and multiple rounds of job cuts.

The new health law doesn’t make things any easier, adding on regulations and restrictions that analysts predict will hurt WellPoint more than its peers.

“Though the government is not supposed to single out companies for scrutiny, we don’t think publicly aggravating it will help,” health care stock analyst Les Funtleyder told his clients.

Braly timeline“The companies in our coverage universe, UnitedHealth Group and Humana, both seem to be taking a more subtle approach and will likely fare better in the eyes of regulators.”

Braly declined to be interviewed for this story. A company spokesman said she preferred to talk about the future, not the past.

But the past isn’t all bad for Braly. Among the big five publicly traded health insurers, WellPoint’s stock has performed second-best since Braly became CEO.

WellPoint’s shares have tumbled 33 percent since May 31, 2007—the day before Braly became CEO. But the stock prices of UnitedHealth Group, Cigna Corp. and Aetna Inc. have fallen even more. Only Humana Inc. has fallen less, 23 percent.

In the same period, the Standard & Poor’s 500 Index has fallen 27 percent.

Braly also oversaw a widely praised deal to sell WellPoint’s pharmacy benefits unit for a whopping $4.6 billion. She struck the deal with Express Scripts Inc. in April 2009 at what analysts called the peak time.

WellPoint maintains an internal list, five pages long, of honors the company and its executives have received. It’s routinely recognized as one of the best companies for black and female employees. And Fortune magazine ranks Braly as the fourth-most-powerful woman in business.

“She’s in a real tough position that’s really complex and, with health care reform, under attack,” said Ellen Annala, CEO of the United Way of Central Indiana.

Braly has volunteered with the United Way, getting her hands dirty cleaning up a kids’ camp, and has personally donated $300,000.

“I think she does [her job] with grace, and never wavers from her values and commitments,” Annala said.

Bumpy tenure

Braly, a 48-year-old mother of three, was WellPoint’s general counsel and chief of public affairs before her predecessor, Larry Glasscock, named her CEO.

The announcement surprised Wall Street analysts, most of whom had never even heard of Braly before her selection.

Glasscock, however, praised Braly’s business acumen and said she shared his strategic vision. He also said Braly’s experience working on public policy issues would be vital for WellPoint.

“The legislative and regulatory framework for the future is going to be incredibly important, and the whole area of public policy. These are all areas that Angela is incredibly skilled at,” Glasscock said when he announced his impending retirement. “So that was a very important aspect of her selection as my successor.”

But WellPoint has stumbled on both the business and the political fronts under Braly’s watch.

Annual earnings per share under Glasscock soared from $2.31 in 2002 to $5.56 at the end of 2007. The company was able to do a string of acquisitions while also growing its existing insurance subsidiaries.

But the opportunities for major acquisitions had dried up by the time Braly took the reins. And the health insurance industry was entering a downward price cycle in which the costs of medical care grew faster than health insurance premiums.

WellPoint appeared to be chugging along under Braly until March 10, 2008, when the company stunned investors by admitting it had mispriced its insurance policies because computer problems had hid a late-2007 surge in medical bills.

The computer problems stemmed from botched integrations of the myriad computer systems inherited from acquired companies.

The recession also started to take a toll, with layoffs at WellPoint’s lucrative employer customers sapping premium revenue. And then the fall 2008 meltdown on Wall Street hammered WellPoint’s investments.

Profits for the year fell 26 percent, to $4.79 per share. WellPoint’s stock price swooned 55 percent.

The party WellPoint workers were used to under Glasscock clearly was over.

Beginning in January 2009, Braly ordered job cuts that totaled 2,400 by the end of the year. The company now employs 40,000 nationwide.

Profits in 2009 fell another 4 percent, excluding the gain from the pharmacy sale. WellPoint’s stock price recovered a bit, but continued to be depressed by investor worries over the impact of health reform.

Still, investors don’t blame Braly for all of WellPoint’s recent struggles.

“There have been some issues, some of which were outside of her control,” said Dave Crossman, senior research analyst at Kirr Marbach & Co., an investment firm in Columbus, Ind., which owns 100,000 WellPoint shares. “I don’t know that getting rid of Angela would change the numbers from the actuaries.”

Political sparring

This year has seen WellPoint’s business turn for the better at the same time its political position tanked.

In February, President Obama seized on news reports that WellPoint was raising rates on California customers with individual insurance policies as much as 39 percent.

He declared outrage during a television interview broadcast right before the Super Bowl. At the time, the election of Massachusetts Republican Scott Brown to the U.S. Senate appeared to have given Republicans enough votes to bottle up Obama’s reform bill in endless debate.

But WellPoint’s rate hikes—which also occurred in Indiana and many other states— gave Democrats the rallying cry they needed to restart health reform.

Braly was summoned to testify before Congress. She tried to give the legislators a lesson in the real reasons health costs are rising so fast—price hikes by hospitals and doctors and deteriorating health among the nation’s aging population.

But they simply expressed incredulity at WellPoint’s timing and executive pay.

“I think that a 39-percent rate increase at a time when people, Americans, are losing their jobs, losing their health care, is so incredibly audacious, so irresponsible. How much money do you make?” asked Rep. Jan Schakowsky, D-Illinois.

Braly made $13.1 million last year, a 51-percent increase from the year before.

“Well, of course, it makes sense then that you would need a big rate increase,” Schakowsky said.

When in April an outside firm found WellPoint had made major math errors in its rate-hike calculations, the company withdrew the application and fired the actuarial managers in charge.

But it seemed to confirm Washington’s worst fears about WellPoint. Obama’s health secretary, Kathleen Sebelius, told state regulators around the country to double-check rate increase requests from WellPoint—but from no other company.

WellPoint officials say they were unfairly singled out by Obama to advance health reform—in the same way he is using Goldman Sachs to advance financial reform, BP to advance climate reform, and the state of Arizona to advance immigration reform.

“We are being targeted and villainized,” Braly explained to investors during an April conference call.

In April, when the Reuters news agency alleged in a story that WellPoint targets breast cancer patients for cancellation of coverage, Sebelius sent a letter to Braly blasting the practice as “unconscionable.” WellPoint called the story grossly misleading.

Braly feverTwo weeks later, Obama trumpeted Sebelius’ response to the breast cancer report as an example of his administration’s being tough on health insurers. He didn’t name WellPoint in that charge, but Braly took him to task, anyway.

“If we are going to make this law work on behalf of all Americans,” Braly wrote in a letter to Obama, “the attacks on the health insurance industry—a valued industry that provides coverage for more than 200 million Americans—must end.”

Squeezing profits

This public feuding concerns investors and analysts, particularly with key decisions about the new health law on the line.

The new health law provides opportunities and pitfalls for WellPoint. It will create new health insurance exchanges by 2014 that will replace the current individual and small-business marketplaces, where WellPoint is stronger than its competitors.

WellPoint’s brand should be strong in the exchanges, but it likely will face greater competition. The exchanges could bring health insurers 16 million new customers, who will receive government subsidies to offset the cost of insurance.

The new law also requires WellPoint and other insurers to spend at least 80 percent of premiums on medical bills—not on overhead or profits—for its individual and small-business policies.

Larger policies have an even higher threshold, 85 percent. If WellPoint doesn’t meet the thresholds, it must return premiums to customers.

WellPoint and its peers are lobbying regulators to get rules for the new law to fall their way.

Sarah James, a health insurance analyst at Wedbush Securities, estimates those provisions alone could sap WellPoint’s pre-tax profits as much as 20 percent—or $850 million—the most in the industry. But if a few decisions go WellPoint’s way, it might suffer only a $50 million hit.

Scott Fidel, a health insurance analyst at Deutsch Bank Securities, while not naming Braly specifically, said he wants to see her team do a better job of doing what she was hired to do: managing relationships with public officials.

“We continue to view the increased efforts of government officials to play a primary role in determining industry rate increases as the single most significant risk to the managed care stocks,” he wrote June 14 to his clients. Referring to WellPoint by its ticker symbol, he added, “Better management of political risk needs to be an utmost priority for WLP’s management team ahead of the elections.”•


  • Misuse of Staff
    It's too bad she doesn't listen to her Public Affairs staff.
  • FYI
    I thought you'd be interested in this.
  • FYI
    I found this interesting. I suspect you will too.
  • BOD
    Where oh where is the Board of Directors? Drunk on stock options?

    Out with her!

    Surely there is somebody more qualified than she has proven herself not to be.

Post a comment to this story

We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
You are legally responsible for what you post and your anonymity is not guaranteed.
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
Subscribe to IBJ
  1. Uh, sorry Johnnie, but you are incorrect. Despite the assertions by yourself and various defenders and captains, sports attendance is NOT off significantly at most sporting events in the US. Variances in attendance has been in the range of single digits, both + & - for years now. MLB has had most of its best overall attendance nubers in the last decade, and that trend has been consistent for most major sporting events. The number one issue cited by most fans when asked about attendance is the overall cost of attending. The presence of HD and big screen televisions in home doesn't even register, as a factor for not attending an event. VALUE in the product is the key, and apparently is something lacking in the current ICS. What other explanation is there when with what is routinely touted as the "best" racing on the planet, fans are staying away in DROVES. A "close" title battle into the last event at Fontana, with the "cars and stars" of the ICS, and who showed up? MAYBE 8K. Sorry, but HD TV isn't to blame for that kind of fan apathy.

  2. Do you need finance to establish your business ? Are you interested in getting a loan at 3% from our private company? If so please Email: suntrust_oil@blumail.org

  3. If she was worth the $ the public outcry over direct tv dropping them would have kept them on their dishes as we have seen with other companies. I too quit watching channel 13 after she showed up since I left channel 8 because of her all show rather than production results. When Randy on 8 corrected her she had a big head and incorrectly challenged his correction for pronunciation of a city. Other antics while she matures was too much for me with her very inaccurate forecasts. All the forecasters were predicting rain until Thursday except Chris. They predicted sunny on Thursday but instead of rain until Thursday upon which the sun would finally make it out in full glory Chris was right on the money just as I too predicted looking at the radar on weather.gov. One thing I love about Angela is the fear you can see in her every time it thunders in the winter. It far exceeds the entertainment value of her body language (high heel noise drags, depression, etc) when her forecasts are so incorrect. Her hair stands on end, you have to see it!!!

  4. Good Day, Apply For A Loan I am Mr Fernadez Antonio, a private Loan lender and a cooperate financial for real estate and any kinds of business financing. I also offer Loans to individuals, Firms and cooperate bodies at 3% interest rate We offer any kind of loans. email us via fernadezloaninvest@outlook.com LOAN APPLICATION FORM First name:......................... Middle name:......................... Last name:........................................ Date of birth (yyyy-mm-dd):....................... Gender:........................................... Marital status:................................... Total Amount Needed............................... Loan Duration.................................... Address:.......................................... City:............................................. State/province:................................... Zip/postal code:.................................. Country:.......................................... Phone:............................................ Fax:.............................................. Mobile/cellular:.................................. Monthly Income.................................... Occupation:....................................... Best Regard, Mr Fernadez Antonio.

  5. i will love to share my testimony to you all the people in world i got married to my husband about 2 year ago we start having problems at home like we stop sleeping on the same bed,fighting about little things he always comes home late at night,drinking too much and sleeping with other women out side i have never love any man in my life except him. he is the father of my child and i don't want to loose him because we have worked so hard together to become what we are and have today .few month ago he now decided to live me and the kid,being a single mother can be hard sometimes and so i have nobody to turn to and i was heart broken.i called my mom and explain every thing to her,my mother told me about DR.okoro how he helped her solve the problem between her and my dad i was surprise about it because they have been without each other for three and a half years and it was like a miracle how they came back to each other. i was directed to DR. okoro on his email:okorospell@gmail.com and explain everything to him,so he promise me not to worry that he will cast a spell and make things come back to how we where so much in love again and that it was another female spirit that was controlling my husband he told me that my problem will be solved within two days if i believe i said OK So he cast a spell for me and after two days my love came back asking me to forgive him i Am so happy now. so that why i decided to share my experience with every body that have such problem contact Dr okoro the great spell caster on his email addresses spellcasterforlove@outlook.com