WellPoint Ignites Health Care Reform Fury – Rate Hike or Pointed Statement to Blame?

Investor Relations

ST. LOUIS (Alpha Found) — Stakeholders in health insurance company WellPoint [NYSE:WLP] must be wondering how it turned into a skunk overnight. The ostensible reason is that WellPoint is sticking it to California by daring to raise insurance premiums 39% for individual policy holders in the bankrupt state. The more likely reason is that WellPoint used its Annual Report filing to present a lucid and powerful warning about proposed health care legislation.

In a normal world, a company that announces a rate increase of nearly two-fifths is either very confident or very foolish. If the services and products are worth a steep increase, customers will pay up. If not, WellPoint’s competitors are going to win handsomely.

These are abnormal times, unfortunately. With health care now politicized to an irrational level in the US (apparently all Americans – and many non-Americans – have a right to any health care at any time regardless of cost, cause, and consequence). So, instead of allowing WellPoint to meet its ‘rate fate’ in the market, Congress is setting up a mini-Kangaroo court. Congressman will preen, and excoriate company CEO Angela Braly to make a case for the Democratic majority’s reform plans.

Needless to say, the legacy media has jumped into the fray with hundreds of stories demonizing WellPoint. For example, ABC News’ The Blotter has a strong attack that anchors the WellPoint premium increase in a story about a denial of care dispute between a patient and WellPoint subsidiary, Bluecross. It’s the worst form of advocacy journalism, though not all that surprising.

The agitation has even crept into specialist financial media. Footnoted.org – newly acquired by Morningstar – used WellCare’s [NYSE:WCG] 10-K risk statement to assert a link between premium increases and negative publicity [NOTE: this corrects a previous error by Alpha Found that confused WellCare and WellPoint - see comment below by Michelle Leder]. We’re fans of much of what Footnoted.org does, but this criticism is absurd in its ignorance if not malicious in its intent.

When the WellPoint 10-k risk statement is read:

1. in its entirety,
2. with attention to continuity from prior years and quarters,
3. compared with competitors, and
4. in the context of current events,

its statement about negative publicity, as well as WellCare’s, is completely reasonable and sound. Indeed, they are very similar in tone and fact to statements by United Health and Coventry.

Indeed, if WellPoint had not highlighted the issue of negative publicity, then investors would have reason for greater concern. The President of the United States has fostered and encouraged much of this negative publicity with focus group tested assaults on demonic insurance companies and tonsil-ripping doctors.

The President’s personal political action committee, Organizing for America, has led the mischief-making with attacks like: “insurance company worst-practices” and admitting to an agenda of interfering with and controlling insurance company decisions on marketing, salaries and profit margins.

The Obama administration, aided by majorities in the House and Senate, has stoked massive negative publicity by exaggerating or simply inventing denial of care horror stories. These are serialized in stump speeches and commercials, with sidebars about excessive health industry profits (net industry margins of less than 5%…) and executive compensation.

WellPoint and its peers are obliged to remind investors about the negative publicity. Indeed, the company’s warning was prescient as opponents used the California rate increase to attack it and build momentum for President Obama’s new health care reform legislation proposal. And kudos to WellPoint for deftly answering the charge with a very simple and effective statement:

Regarding Letter from Secretary of Health and Human Services

February 8, 2010

Anthem Blue Cross in California has received the letter from Secretary Sebelius. We will reply to her promptly. It is important to note that individual medical insurance premiums do not reflect an individual member’s personal claims experience. Therefore, as medical costs increase across our member population, premium increases to the entire membership pool result. Unfortunately, in the weak economy many people who do not have health conditions are foregoing buying insurance. This leaves fewer people, often with significantly greater medical needs, in the insured pool. We regret the impact this has on our members. It highlights, why we need sustainable health care reform to manage the steadily rising costs of hospitals, drugs and doctors . As such, it is important to go back to the beginning and get health care reform done right. At the same time, we are engaging with a broad range of key stakeholders across California to discuss the state’s individual insurance market and share ideas on how we can collectively partner on meaningful change.

However, the more plausible reason for the WellPoint outrage is its 10-K’s pointed debunking of the Obama proposals. After all, WellPoint’s premium increases are neither unusual nor the highest in the country. Read the whole statement for yourself, but here’s the money quote (emphasis mine):

We do not currently know the ultimate outcome of the reconciliation process or the legislation. Depending on the provisions contained in the final law, this legislation could have a material adverse impact on our business, cash flows, financial condition or results of operations.

That is not one of the talking points health care reform proponents want the public to hear. The message has been that reform will be better for everyone except health insurance executives. But the facts are clear – millions of private sector jobs are at stake that are directly and indirectly tied to the health insurance industry. That is by far the greatest risk of reform, even before the dread of government run programs is factored in for patients.

When you read all the major insurance companies risk statements, just one thing becomes clear – health insurance in the United States is suffering from an excess of government regulation and interference.

© 2010, Alpha Found.

Aetna, Angela Braly, Anthem Blue Cross, Barack Obama, Bluecross, California, Coventry, Health Net, Healthcare Reform, Medical Inflation, United Health, Wellpoint Leave a comment