A Scrappy Insurer Wrestles With Reform

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Angela F. Braly never hesitates to speak up for her company. In the last
several months, Ms. Braly, the chief executive of WellPoint, one of the
nation’s largest health insurers, has tangled with state regulators,
Congress and the Obama administration over concerns that it charges
customers too much or engages in questionable tactics to avoid paying

She’s even willing to take on President Obama himself. On May 8, Mr. Obama said in a radio address that his
administration had asked an insurer to stop dropping coverage for women
with breast cancer. He didn’t name the company, but WellPoint had
recently been accused of revoking the policies of such women.

Ms. Braly, a corporate lawyer who was chosen three years ago as
WellPoint’s C.E.O., presented a full-throated defense. In a letter to Mr. Obama, she said
WellPoint “does not single out women with breast cancer for rescission.
Period.” She also accused the administration of engaging in behavior
that “is simply not productive and not in the best interests of

But it is WellPoint, one of the companies that may have the most to lose
under the new health care law, that seems unwilling — or unable — to
avoid controversies that make it an easy target in Washington. In the
last weeks of the debate over health care legislation, for example,
WellPoint became the focus of lawmakers’ indignation over its decision
to raise premiums in California as much as 39 percent.

Hauled before Congress in February to justify the decision, Ms. Braly
refused to back down, although the uproar over the proposed increases
might have helped hasten the legislation’s passage.

“They threw gasoline on the dying embers of health reform,” said Robert
Laszewski, an industry analyst in Alexandria, Va. WellPoint withdrew the
request after state regulators found it had made significant errors in
the application.

Unlike some commercial insurers, WellPoint has bet heavily on the
generous profits that flow from selling health insurance to individuals
and small businesses. The company, which operates Blue Cross plans in
more than a dozen states, is under pressure to deliver results under the
new law, which sharply limits the prices it can charge and will
eventually require it to cover all potential customers regardless of
whether they have an expensive medical condition.

“They are going to have to fundamentally rethink how they are going to
do business,” said Peter T. Harbage, a policy analyst and former
California health official. “The question is whether WellPoint is going
to be able to reform itself.”

Ms. Braly argues that WellPoint is well positioned because of its size
and the strong appeal of the Blue Cross name. “We have a lot of
historical strengths,” she said in an interview last week at the
company’s headquarters in Indianapolis. But, she said, WellPoint is now
focusing on what it needs to do in the wake of the new law’s passage.
“There are new parameters,” she said, “and new marketplace rules.”

Some people say WellPoint’s combative stance reflects just how worried
the company is about the future. “In some ways, WellPoint feels more
embattled,” says Jerry Flanagan, a consumer advocate in California,
because it dominates the increasingly regulated individual market, and
this “puts them into a defensive mind-set.”

In the months after the bruising battle over the health care
legislation, the company still seems to be fighting the last war,
despite its protests that it has moved on. During a recent call with
analysts, Ms. Braly repeated her complaint that insurers were being
blamed unfairly for the rapid increases in the cost of care.

“We are being targeted and villainized,” she said. “They are shooting
the messenger.”

OVER the last decade, WellPoint has become one of the nation’s largest
insurers by buying up the Blue Cross plans that dominate the individual
and small group markets in their states.

“That was a great strategy for a long time,” says Thomas A. Carroll, who
follows the company for Stifel Nicolaus, the investment firm in St.
Louis. “It was a way to basically add market share and add revenue.
Investors liked it.”

WellPoint now has about 34 million customers, putting it ahead of the UnitedHealth Group in membership, and $60 billion in revenue, second behind
UnitedHealth. While UnitedHealth and the other national companies tend
to focus on providing services to large employers with workers in
multiple locations, WellPoint’s focus has been on the local markets. Its
strong presence allows it to demand the lowest prices from doctors and
hospitals, while still offering customers a broad network of providers
from which to choose.

But its acquisition spree of Blue Cross plans ended in 2005, when it
bought Empire Blue Cross Blue Shield plans in New York and New Jersey.
The company says the health care law will probably create new
opportunities to buy smaller Blue Cross plans that may have difficulty
competing against much larger companies.

“We have a unique opportunity to be a Blues consolidator,” said Wayne S.
DeVeydt, WellPoint’s chief financial officer.

Whether that strategy will remain successful, however, is uncertain.
Some people say the company has not been clear about how it will adjust
to the health care overhaul.

“They’ve been a little slow relative to the other people in articulating
a strategy,” said Les Funtleyder, who oversees health care strategy at
Miller Tabak, an investment firm in New York. “It’s a contrast that is
starting to be noticeable.”

Because of its dependence on the higher profit margins of its
traditional business, WellPoint has also not been as adventurous in
trying new approaches, according to some industry watchers. “WellPoint’s
competitors do spin it better, and they are in some ways more
innovative,” said John Watts, a former senior executive at WellPoint who
now works as a consultant.

UnitedHealth, for example, tends to emphasize its technological strength
and to characterize itself as much more than an insurer. Cigna has been pursuing business overseas. And they and other major WellPoint
rivals have long competed for the business of large employers that are
not looking for traditional insurance but want insurers to handle
claims and suggest ways to better manage their workers’ care.

Ms. Braly says WellPoint is becoming a strong player in areas like
handling claims for large, self-insured employers and offering private
health plans to people enrolled in state Medicaid programs. “Part of our strength has
been that we haven’t been a niche player,” she says. “We have been

WellPoint says it has also invested in new ways of keeping its members
healthier, and it calls itself a leader in programs to encourage doctors
and hospitals to improve care and reduce costs. It spent $250 million
last year on experiments meant to link payments to clinical results.

Still, no one thinks that providing coverage to individuals and small
businesses is likely to be as profitable under the new law.

Starting in 2014, WellPoint and its competitors will have to offer
coverage to anyone who wants it, including people with potentially
expensive pre-existing conditions, rather than carefully selecting the
people they are willing to cover. As soon as next year, insurers will
also have to spend at least 80 cents of every dollar they collect in
premiums on providing health care to individual customers. WellPoint
says that one reason it withdrew its California application was to make
sure that the premiums it intends to charge met the new standards.

The business is also WellPoint’s to lose. Some other large national
companies, which have not invested much in the individual market, have
only an upside in pursuing the new customers the law will bring in.

“It could be an opportunity for folks like Cigna and HealthNet who
haven’t been there,” said Christine Arnold, an analyst at Cowen &
Company, adding that the Blue Cross brand might not be as advantageous
as the company expects. “It’s not clear how enduring existing brands
will be.”

MS. BRALY, 48, a native of the Dallas area who received a law degree
from Southern Methodist University, worked as a lawyer
before she became general counsel to a small Blue Cross insurer in
Missouri. She eventually ran that company, which is now part of
WellPoint. Before being picked for WellPoint’s top job in June 2007, Ms.
Braly worked as both a corporate executive and the company’s general

Her selection as C.E.O. surprised many analysts and investors. While
some believed that she would bring a warmer touch to the company, others
worried that she did not have enough years as a manager to navigate a
highly regulated and often highly political environment.

In the last year, WellPoint became a favorite example of Congress and
the administration for why health care overhaul was needed. Even people
inside the industry say the company has been painfully slow to recognize
consequences of some of its controversial actions, whether canceling a
sick patient’s coverage or raising premiums on policies that lawmakers
already call too expensive. And some say that Ms. Braly’s quickness to
argue with WellPoint’s critics, revealing her training as a lawyer, is
not always productive.

“WellPoint is the most incredibly tone-deaf insurance company in an
industry full of deaf executives,” says Mr. Laszewski, the Virginia
consultant. He criticizes Ms. Braly, who received $13.1 million last
year in compensation, as being insensitive to the politics involved in
running a health insurer, at both the state and federal levels. “I don’t
think she has the scar tissue and experience,” he says. “I don’t think
she has the marketplace instincts.”

Ms. Braly says her experience in government affairs makes her well
suited for handling a complex regulatory environment.

The continuing brouhaha over dropping cancer patients’ coverage shows
just how hard it is for WellPoint to distance itself from controversy.

Congress held hearings last June on accusations that insurers dropped
coverage of seriously ill patients. The Los Angeles Times had been
reporting extensively on the controversy, and, last month, a Reuters article focused on the plight of breast cancer patients
dropped by WellPoint. Kathleen Sebelius, the secretary of health and human services, urged the
company to stop canceling the policies of breast cancer patients.

WellPoint immediately issued a detailed rebuttal to the
Reuters report.
The company disputed some of the report’s
accusations and emphasized that it routinely looked for cases where
someone seemed to have blatantly lied on an application. Ms. Braly says
the company never singled out breast cancer patients. Nevertheless,
WellPoint agreed to stop canceling policies, except in cases of
deliberate fraud, as of May 1, before the law required.

In the letter to Mr. Obama, Ms. Braly acknowledged that the insurer did
cancel coverage last year for four women who had the disease at some
point. But she cited the nearly $2 billion WellPoint paid in medical
claims in 2009 for other breast cancer patients as evidence that it was
not singling out such patients.

The company has also had to retreat after aggressively seeking to raise
rates. In California, state regulators challenged its request to
increase rates as much as 39 percent. The state insurance commissioner
asked an outside firm to conduct an independent review; it found
significant errors in the company’s calculations, which had led it to
overstate its medical costs. Instead of needing a 25 percent increase,
on average, the review determined that WellPoint was justified in
seeking only 15 percent.

“It’s very disappointing and very embarrassing,” says Mr. DeVeydt, the
C.F.O., who characterized the errors as inadvertent.

Ms. Sebelius quickly urged other state regulators to carry out reviews
of WellPoint’s requests for higher premiums. Although WellPoint says the
mistakes were limited to California, it says it will undertake
independent evaluations of its rates in other states.

But California is not the only state to push back, and analysts expect
states’ regulators to be more resistant to high premiums in the years
leading up to the new marketplaces, or exchanges, required by the new
law. In Maine, WellPoint recently lost a battle with regulators who
denied it the increases it said were needed for a sufficient level of

“We never want to fight with regulators,” Ms. Braly said. She said she
felt only an obligation to set the record straight when there was
confusion over the company’s actions.

Uncomfortable with being portrayed as combative, Ms. Braly points to
what she calls WellPoint’s long history of being “the nice company,” but
says she still needs to defend its record. “We need to tell the facts,”
she says.

Ms. Sebelius, after a public appearance on Friday related to federal
stimulus programs, said she plans to work with insurers including
WellPoint on implementing the new health care law.

MS. BRALY says she looks forward to the “disruption and change” the new
law brings to her industry because it lets WellPoint leverage its
understanding of local markets. “We have the opportunity to be the
leader,” she said.

She says WellPoint is expanding its presence in the large-employer
market, where it gained customers in the first quarter. WellPoint also
is already one of the largest providers of private health plans in
Medicaid, where many of the newly insured are likely to get their

As for consumer advocates and lawmakers zeroing in on her company, Ms.
Braly brushes off the criticism. “We’re focused on the customer,” she
says. “I’m not a politician. I’m a businessperson.”

Consumer Watchdog
Consumer Watchdoghttps://consumerwatchdog.org
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