WellPoint Thrives As Public Plan Takes A Dive

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As the health-care reform debate boiled over this week, so did WellPoint’s stock price.

Shares of the Indianapolis-based health insurance giant surged to a 52-week high Thursday as the prospects for a new government-run "public option" health plan faded amid intense Senate debate. WellPoint rivals Cigna and UnitedHealth Group also hit 52-week highs.

It’s a sign, more than one observer suggested, of victory for private health insurers, which strenuously fought the public option.

"Obviously, the market thinks WellPoint’s a winner," said Daniel Evans, chief executive of Clarian Health, an Indianapolis-based hospital system. "If the public option is no longer on the table, then WellPoint is a winner because it’s not threatened by a government competitor."

And Evans wasn’t alone.

Appearing on CNBC, Leerink Swann analyst John Sullivan declared WellPoint one of the victors of health reform.

Although all sorts of health-care companies — such as Indianapolis drug maker Eli Lilly and Co. and Warsaw orthopedics implant maker Zimmer Holdings — would be affected by reform, insurers’ interests are uniquely entangled in the debate. Many of the proposed reforms go to the heart of how the U.S. insurance market is structured.

So health insurers have been among the most vocal participants in the debate. Through the first nine months of 2009, the health services and HMO industry has spent $52.8 million and used 988 lobbyists, according to the Center for Responsive Politics. That’s almost 12 percent more than the amount spent during the same time period in 2008.

WellPoint, the largest U.S. health insurance company, spent $3.5 million on federal lobbying in the first nine months of 2009, according to federal disclosures. WellPoint’s executives also have been actively making the company’s case.

The public option has been Public Enemy No. 1 for insurers. A Medicare-for-all-like plan, WellPoint has said, would force people with private plans to pay more for care to offset the lower rates paid to hospitals by government plans.

That, in turn, would put commercial insurers at a competitive disadvantage, WellPoint has said.

But even as the "public option" was all but declared dead Thursday, boosting WellPoint shares $2.10 to close at $57.43, the company still sees plenty to worry about.

"There’s a lot of details we haven’t really seen," said Brad Fluegel, WellPoint’s chief strategy and external affairs officer. "We continue to be concerned about government plans of any form that ultimately cause people to lose their private coverage."

A Democratic compromise in the Senate would replace a public option with other coverage. New national health plans based on coverage provided to federal employees would be created. Many of those details have not been worked out, Fluegel said.

Also, people who are 55 or older and uninsured would be able to buy into Medicare.

An expanded Medicare, Fluegel said, would result in higher premium payments for those who remain in commercial plans.

Medicare pays a flat rate that often does not cover a physician or hospital’s costs for care, he said, and those providers would in turn press for-profit insurers for higher rates to make up the difference.

Jason Gurda, an analyst with Leerink Swann, wrote in a research note this week that negative elements for insurers such as WellPoint likely would be offset by significant gains in membership.

WellPoint has seen its profits and membership decline during the recession as laid-off workers lost their employer-based coverage. At the end of September, WellPoint had 33.9 million members — a decline of 1.5 million from a year ago.

One aspect of health-care reform would seem to offer help: a mandate that individuals buy health coverage. But WellPoint sees problems with that provision, which the health insurance industry sought in exchange for offering coverage for all, including those with pre-existing conditions.

Fluegel said the penalty for not buying coverage, a fine starting at $95, is insufficient and will cause many healthy people to remain uninsured.

America’s Health Insurance Plans, the industry’s main lobbying group, also complained Thursday that $6.7 billion in annual taxes in the legislation would make coverage more expensive for Americans. WellPoint has said possible reforms do not go far enough to base reimbursement on good clinical outcomes instead of the number of procedures performed.

Any legislation must work its way through Congress and be signed by President Barack Obama. Many changes would be phased in over the next few years.

The House passed a bill in November that includes a public option. But some in favor of a government-run plan see little chance of it surviving.

Still, there is still plenty to argue about.

Dr. Samuel Nussbaum, WellPoint’s chief medical officer, spoke before about 100 people as part of a panel discussion on health-care reform hosted by young professionals group Indyhub at the Athenaeum Theatre on Mass Ave.

At one point, Nussbaum pointed to the audience, mostly made up of 20- and 30-somethings. Under the proposed reforms, he said, the audience members’ premiums would go up. He said the legislation would tighten the price range insurers can charge their healthiest and less healthy customers.

That logic seemed to resonate with some.

Ruth Alexander, 30, Indianapolis, said she works in the insurance industry (although not health insurance) and sees why companies such as WellPoint need to charge different rates for different people depending on their risk.

"Obviously, something needs to be done," she said. "But the way health-care reform starts right now, I’m not in favor of it."

Critics of the insurance industry, though, say reform is already favoring WellPoint and its peers.

"Everything that has happened in the past day or so has certainly been in their favor," said Judy Dugan, research director of California-based Consumer Watchdog.

Call Star reporter Daniel Lee at (317) 444-6311.

The Associated Press contributed to this story.

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