Big and beleaguered: WellPoint's bad image

The health plan has been widely assailed for its business practices, but company executives say they're just trying to keep down costs.

By — Posted Aug. 16, 2010

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Health plans are familiar with being disliked, but only WellPoint is being lumped in with some of the most reviled corporations in the United States.

"Everyone loves to hate WellPoint," Stifel Nicolaus analyst Thomas Carroll told Forbes reporter David Whelan in a May 19 article that began: "Angela Braly is the Lloyd Blankfein of health care." Braly is the CEO and chair of WellPoint, and Blankfein is the CEO of Goldman Sachs. Both have spent a lot of time before congressional committees explaining their companies' actions to angry lawmakers.

And both were in the top five of's June 22 list of "Most hateable companies (not named BP)." Goldman Sachs was No. 1; WellPoint, the only insurer on the list, was No. 4.

Just as Goldman Sachs has become a symbol for so much of what precipitated the banking crisis and recession, which lead to financial reform pushed by President Obama, WellPoint's practices were emblematic of what precipitated Obama's mandate for health system reform. Rescissions of coverage. Large rate increases. A goal of profits over membership when the number of uninsured people was growing.

WellPoint is not only the case for health care reform, but the widely cited reason it came back to life after a near-death experience. By proposing a 39% individual rate hike in California, the company gave the Obama administration a hook for health system reform and enraged even people predisposed to support insurers' interests.

"You handed the politicians red meat at a time when health care is being discussed. You gave it to them!" Fox Business Channel host Stuart Varney yelled at WellPoint Vice President Brad Fluegel in a Feb. 15 interview. "I mean, really, you couldn't see this coming?"

WellPoint is well aware that its actions have made it a punching bag. It would not speak to American Medical News for this article, but during WellPoint's review of its first-quarter 2010 earnings, Braly addressed its image and defended its actions as those of a company struggling to stay profitable as health care costs soar.

In the conference call, Braly addressed concerns by Morgan Stanley analyst Doug Simpson, who said, "There's this disconnect where the industry remains this attractive target, and obviously it's been a lot of unfavorable press."

"I think we have a number of initiatives under way to make sure that [WellPoint's] message is understood," Braly said. "You are right [that] we are being targeted as villains. They are shooting the messenger, because in the messages, we have to address the underlying cost, and that's our job each and every day."

Shortly after the call, WellPoint revealed that it spent $151,000 in 2009 on security for Braly "in light of growing concerns regarding the safety of Ms. Braly and her family as a result of the national health care debate."

WellPoint was formed in 2004 with the merger of WellPoint Health Networks Inc. and Anthem Inc., the latter of which had been a mutually owned company until its for-profit conversion soon before the deal. In its current incarnation, WellPoint runs 14 state Blues plans operating as for-profit subsidiaries, known as Anthem or Anthem Blue Cross in most states.

WellPoint was generally no more or less disliked than any other health plan. However, that was to change.

A state investigation begun in 2007 over health insurance rescissions snowballed into inquiries, lawsuits, state legislation pushing a ban on rescissions, a congressional investigation into rescissions, and millions of dollars in state fines for improperly revoking member policies. WellPoint denied any wrongdoing.

In 2008, after physician complaints, the company stopped sending letters asking doctors for help identifying preexisting conditions that might make patients ineligible for coverage and therefore subject to rescission.

In May 2010, the furor over rescissions reignited when a Reuters report said the company targeted members with breast cancer for rescission -- a charge the company denies but one that carried enough weight for President Obama to mention in his weekly address May 8.

Health reform reignited

Public outrage about a proposed rate increase for California policyholders prompted a congressional hearing in February. Republican Scott Brown had replaced the late Democrat Edward Kennedy in the Senate, which cut the Democrats' advantage to 59-41. So it appeared that any attempt to reconcile the Senate version of health system reform with the House version without a 60-40 majority looked politically untenable. But analysts -- and many in the health plan industry -- agreed that WellPoint's maximum 39% rate hike relit the fire behind the bill, which was signed into law March 23.

"Talk about awful timing," said Susanne Madden, CEO of the Verden Group, a consulting firm in Nyack, N.Y., that tracks how payers treat physicians. "Could you set yourself up more to be the poster child for villains?"

WellPoint in 2009 became the subject of derision after it challenged the decision by Maine insurance superintendent Mila Kofman to reduce that year's rate increase. Its legal challenge asserted that the company had a right to make a reasonable profit -- something a critic cast as "suing to guarantee a profit."

WellPoint countered that it was suing because it was being treated as a de facto "safety net" without agreeing to act as such for the state's individual insurance market. The case is still in court.

In California, WellPoint resubmitted lower individual rates -- a maximum of 20% -- after state insurance regulators said its 39% increase was based on faulty math.

Whether it loses its most recent public relations battle, WellPoint and other insurers seem to be losing political ground in several states where proposed and enacted legislation has made it more difficult to raise rates.

In New York, the legislature returned the authority to accept or reject rate increases (known as prior approval) to the insurance commissioner. In Massachusetts, Gov. Deval Patrick's administration has battled with insurers over his efforts to cap rate increases. Pending rate hikes have been investigated, held up or rejected in several other states.

If it cannot raise rates, WellPoint -- and other national insurers -- will have to cut costs, experts said. This is where physicians might be affected. WellPoint is likely to cut costs by further reducing payments for hospitals and physicians and restricting networks, experts said.

Limited networks that diminish patient choice but control costs are likely to become more popular as WellPoint and other insurers look for ways to keep costs down, said William Custer, PhD, a professor of health administration at Georgia State University.

"Bargaining won't necessarily be on the line of price," he said, "It will be more of, ' We're going to have a select network, and to be in it, you have to meet other requirements that have to do with utilization.' "

Insurers feeling squeezed

The consequences of reform -- minimum medical spending requirements, resistance to raising rates and new, more expensive customers -- will squeeze health insurers' profits, said Carlton Doty, vice president for enterprise strategies in the insurance solutions group at Merkle, a customer relations and marketing agency.

He said companies will have to look to cut costs as their profit margin is squeezed, and, like Custer, Doty said limited networks will probably be one solution.

"It's not necessarily that they would force employers into that, but there's only so many ways to reduce costs," Doty said.

In the past, plans have suffered in the realm of public opinion for overtly balancing costs on physicians' backs. Notably, Aetna, in the early 2000s, and UnitedHealth Group, in the middle of the decade, made nice -- at least publicly -- with physicians as a way to overcome public relations problems.

However, WellPoint is pushing its message of a company standing in the way of out-of-control health costs. It remains to be seen whether that message will take.

During the health reform debate, it didn't. On Feb. 24, Braly appeared before the House Subcommittee on Oversight and Investigations to discuss the rate increases. Highly unsympathetic members of Congress confronted her. U.S. Rep. Bart Stupak, (D, Mich.) whose support would prove essential to passing reform legislation, opened by summarizing his subcommittee's findings:

"WellPoint has tried to justify their rate increases through a high-profile media campaign, reassuring policyholders, congressional leaders and the administration that the proposed rate increases are necessary due to rising medical costs and declining business resulting from economic difficulties, not from padding their bottom line," Stupak said. "Through our investigation, we discovered internal documents that suggest a closer relationship between the proposed premium increases and WellPoint's profits."

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Plans: Medical costs are the bad guys -- not us

Thus far, WellPoint and insurance trade group America's Health Insurance Plans have responded to criticism about rate increases with variations on the same theme: Medical costs, driven by physicians and hospitals, are rising so dramatically that insurers cannot avoid raising rates.

"Well, of course, that's what insurers have been saying for 30 years," said William Custer, PhD, professor of health administration at Georgia State University.

The argument doesn't appear to work if WellPoint and AHIP are trying to elicit sympathy or understanding from the public or policymakers.

As it went on the defensive using studies demonstrating higher medical costs, WellPoint reduced payment for physicians in most of its markets by double-digit percentages for certain procedures, and the cuts were across all specialties, said Susanne Madden, CEO of the consulting firm Verden Group in Nyack, N.Y.

"They've done a spectacular job destroying customer loyalty and physician loyalty at the same time, and they're not making any friends in government," she said. "They don't seem to have a grasp on the fact that if they do not have physicians as allies in some way, shape or form, they're going to have a hard time."

WellPoint struggles to win over the public because people trust their doctors and hospitals and mistrust insurance companies, Custer said.

Blaming doctors and hospitals doesn't work, Madden said. Patients can see hospitals closing because of financial pressures and physicians working long hours to keep their practices open amid lower reimbursements. Not so with health insurers.

"It's more than obvious they are just making stellar profits," she said.

WellPoint executives did not respond to requests for this article.

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