WellPoint in spotlight as Democrats eye reform

WASHINGTON/NEW YORK Fri Feb 19, 2010 3:50pm EST

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WASHINGTON/NEW YORK (Reuters) - Democrats looking to revive their healthcare reform plan are pointing to health insurer WellPoint Inc's WLP.N controversial rate hikes to show the costs consumers face in the absence of legislation to overhaul the system.

The Obama administration and congressional Democrats are using the company's planned increases -- up to 39 percent for some individuals -- as part of their strategy to inject momentum into legislation that has stalled in Congress.

On Wednesday, a U.S. House of Representatives Energy and Commerce panel will grill company leadership over the increases. Committee Democrats have called on Chief Executive Officer Angela Braly to testify, but it is unclear who will take the political hot seat. It comes one day before a highly anticipated White House meeting with Republicans over the pending healthcare legislation.

"HHS (Department of Health and Human Services) and the White House are now looking for a villain to have a reason to push through some sort of bill with the reconciliation procedure, and this is one way to vilify the industry," Sanford Bernstein analyst Ana Gupte said.

WellPoint, the largest U.S. health insurer by membership, has defended the proposed rate increases by its Anthem Blue Cross plan in California as necessary to keep up with rising health care costs and roughly in line with competitors' prices.

In fact, a report released this week by Health and Human Services said a number of other health insurance companies planned significant premium increases even as profits for the 10 largest health insurers rose 250 percent from 2000 to 2009.

But WellPoint has been singled out with letters from health secretary Kathleen Sebelius over the increases even though health insurance is regulated on a state-by-state basis, not by the federal government.

Its shares have fallen more than 4 percent since the California rate increases drew attention in Washington, compared with a 4 percent rise for the Standard & Poor's 500 over that time. Gupte said the negative pressure from the hearing is priced into the stock, but there may be more "headline risk" leading up to the hearing.

WellPoint spokeswoman Kristin Binns said it had not yet determined which executive will appear before the committee. Earlier this week, the company canceled an investor conference to prepare for the hearing.

Should she testify, the congressional hearing would be a major test for WellPoint Chief Executive Officer Angela Braly. The 48-year-old Texan was named CEO in February 2007, after previously serving as general counsel. Braly also previously served as CEO of Blue Cross Blue Shield of Missouri.

"The individual market is problematic and costs continue to outpace premiums in the individual market, not just for us but for several carriers," Binns said. "Simply putting forth insurance market reforms is not going to get some of these things driving these costs."

WellPoint has temporarily suspended the rate hike for two months, but it is unclear what will happen after that.

The hearing "highlights the problem with the affordability of health insurance, but I don't think there's much more the Obama administration can do beyond highlighting what they see as a problem," said Paul Heldman, a senior healthcare analyst for Potomac Research Group in Washington.

Both the House and the Senate have passed separate healthcare proposals, but Democrats have not been able to pass a final measure since losing their supermajority last month.

On Thursday, President Barack Obama will hold a public meeting with Democratic and Republican congressional leadership aimed at moving the legislative process forward.

(Reporting by Susan Heavey in Washington and Lewis Krauskopf in New York, editing by Gerald E. McCormick)

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