Insurer handed out bonuses, planned huge rate increase

McClatchy NewspapersFebruary 24, 2010 

WASHINGTON — While Anthem Blue Cross proposed a 39 percent rate increase on thousands of its California customers, its parent company gave 39 of its executives more than $1 million each and spent more than $27 million on 103 lavish executive retreats, congressional investigators said Wednesday.

"One question we asked is where does all of this money go? ... Corporate executives at WellPoint are thriving, while its policyholders are paying the price," Rep. Henry Waxman, D-Calif., said at a House of Representatives subcommittee hearing Wednesday.

Angela Braly, the chief executive of WellPoint, Anthem Blue Cross' parent company, told the House panel that the rate increases were necessary to keep the company solvent.

In response to the company's proposed rate hike, Congress is weighing a plan that would create a federal agency to oversee proposed health insurance rate increases.

Critics say the federal government has no business setting prices in the private sector, while proponents say it's the only way to rein in greedy companies that increasingly are taking advantage of consumers.

At Wednesday's hearing, Braly told the House panel that the rate increases were needed to keep up with medical inflation.

"Raising our premiums was not something we wanted to do," she said. "But we believe this was the most prudent choice given the rising cost of care and the problems caused by many younger and healthier policyholders dropping or reducing their coverage during tough economic times."

She said the company welcomed the scrutiny it was receiving, and that its rate increases were "actuarially sound and in full compliance with all requirements in the law."

Waxman, the chairman of the House Energy and Commerce Committee, charged that the company's story wasn't one of higher costs. "The thousands of pages of WellPoint documents we have reviewed tell another story," he said. "They tell a story not about costs, but about profits."

California Democratic Sen. Dianne Feinstein, who's proposing the new Medical Insurance Rate Authority, called Anthem's proposed rate hike "unconscionable." She said the company's latest move "is just another demonstration that the health insurance industry will not change its behavior until it is required to do so."

Feinstein cited a recent study that showed that the nation's five largest insurance companies reported record profits of $12.2 billion last year, an increase of $4.4 billion, or 56 percent, from 2008. "The insurance industry reaps soaring profits by piling massive financial burdens onto consumers," she said. WellPoint, she said, reported earning $2.7 billion in the fourth quarter of last year alone.

Waxman used WellPoint to make the case for an immediate overhaul of the nation's health insurance system.

"If we fail to pass health reform, insurance rates will skyrocket and health insurance will become so expensive only the most healthy and most wealthy will be able to afford coverage," he said. "Health insurers like WellPoint may get richer, but our nation's health will suffer."

Under Feinstein's bill, the secretary of health and human services could review proposed rate increases in states where the insurance commissioner lacks the authority or capability to do so. Feinstein said that at least 25 states gave their insurance commissioners some type of authority to review or regulate premium hikes.

In addition, the bill would require companies to justify premium increases and would give the HHS secretary the authority to deny rate increases that the government found to be unjustified. The Medical Insurance Rate Authority would advise the secretary and would be composed of seven members: two consumer representatives, one insurance industry representative, one physician and three other experts.

Feinstein's idea won a key endorsement Monday from President Barack Obama, who wants it included in any new health care bill that Congress will consider this year.

In interviews earlier this week, two Republican governors expressed skepticism.

"I have never known federal price-fixing to work very well for very long," Mississippi Gov. Haley Barbour said.

"My initial reaction is I'm not wild about it," Virginia Gov. Bob McDonnell said. He said a rate authority board might be a good idea if it were advisory only. "I believe strongly in the free market to decide the prices. … To give them any teeth to help regulate prices at the federal level I don't think is the right direction."

Maryland Democratic Gov. Martin O'Malley called WellPoint's rate increase "outrageous" and said that a federal rate authority could aid states in their regulatory efforts: "I think that having a federal backstop could well be helpful."

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