UPDATE 1-WellPoint defends rate increase, Democrats howl

Thu Feb 11, 2010 6:10pm EST

 * Premium increases reflect higher costs, company says
 * Democrats point to rate hike, push reform
 (Recasts first paragraph to include healthcare overhaul
context; adds reaction, analyst comment, share prices)
 By Susan Heavey
 WASHINGTON, Feb 11 (Reuters) - Health insurer WellPoint Inc
WLP.N defended its rate hike of up to 39-percent for certain
California customers as Democrats latched onto the increase to
press their case for overhauling the U.S. healthcare system.
 The controversy comes as Democrats struggle for a path
forward to expand access to health insurance, while imposing
new rules for the industry, after losing their supermajority in
the Senate last month. It also highlights the friction between
the Obama administration and health insurers who largely
opposed Democrats' plans now stalled in Congress.
 Earlier this week, U.S. Health Secretary Kathleen Sebelius
challenged WellPoint after reports of the premium increases for
people who bought their own coverage through the company's
Anthem Blue Cross subsidiary in California.
 WellPoint, in a response to Sebelius on Thursday, said the
higher prices reflect greater medical costs and are in line
with competitors.
 "These rate increases are unfortunate but necessary to
reflect the costs of paying for the medical services for our
members in the current challenging environment," wrote Brian
Sassi, head of WellPoint's Consumer Business Unit.
 Although health insurance is regulated at the state level,
Sebelius and other Democrats pointed to the rate jump as more
evidence of the need to pass health reform legislation.
 Both the U.S. Senate and House of Representatives have
passed separate bills but have not been able to find a way to
combine them into one final measure for President Barack Obama
to sign into law. Obama has vowed to continue to work for a
final bill, including hosting Republicans at a Feb. 25
 WellPoint's Sassi said rates are rising faster than
inflation for those who buy their own insurance because people
are using more health services while doctors and other
providers are charging more.
 But Sebelius said high costs alone could not account for
Anthem's increase "that will leave consumers with nothing but
bad options: pay more for coverage, cut back on benefits or
join the ranks of the uninsured."
 House Democrats are looking into the rate rise and have
scheduled a hearing for Feb. 24.
 Meanwhile, The Indianapolis Star also reported similar
increases in Indiana on Monday, following a Los Angeles Times
reported on the California rate increase last week.
 Despite the headlines, some analysts see little risk for
WellPoint other than more political bad news for an industry
that has already become Democrats' top target in their fight to
find a way to reconcile their two bills into law.
 Wells Fargo Senior Analyst Matt Perry said this week the
news offered Democrats "a chance to go back on the offensive
against health insurers," but little else.
 Shares of WellPoint gained nearly 1 percent to close at
$60.52 on the New York Stock Exchange on Thursday.
 The 39 percent figure was one of the higher increases and
reflects consumers' age, Sassi said, adding that customers are
free to choose lower-cost options. WellPoint is also
cooperating with California's own review in which an external
audit found the rates "sound and necessary," he said.
 Overall healthcare costs outpace inflation, and studies
have also shown people who get healthcare coverage through
their employer also face significant premium increases.
 Sassi pointed to the individual market as one "of last
resort" but said policy changes in the congressional bills
would have still raised costs for consumers.
 Democrats' legislation includes a host of changes such as
expanding access to health insurance while requiring companies
to cover people with pre-existing conditions as well as ending
lifetime caps on coverage.
 Republicans are pushing Democrats to scrap the measure and
start over.
 But Senate Majority Leader Harry Reid said Anthem's case
shows the current system allows insurers to "run wild."
 Richard Kirsch, a national campaign manager for the liberal
healthcare reform advocacy group Health Care for America Now,
said rate increases like Anthem's are likely to continue,
especially in the individual market.
 Kirsch's group issued a report on Thursday showing how
profits for the top health insurers -- WellPoint, UnitedHealth
Group (UNH.N), Aetna (AET.N), Humana (HUM.N), and Cigna (CI.N)
-- rose 56 percent in 2009, compared to 2008, despite losing
2.7 million enrollees.
 The industry's lobby group, America's Health Insurance
Plans, said insurer's profits were "well below" those for other
healthcare industries.
 (Additional reporting by Donna Smith, editing by Matthew Lewis
and Tim Dobbyn)