By Rob Hotakainen
Published: Thursday, Feb. 25, 2010 – 12:00 am | Page 1A

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

“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,” Democratic Rep. Henry Waxman of Los Angeles said Wednesday at a House subcommittee hearing, where results of the investigation were announced.

One of the company’s retreats, in Scottsdale, Ariz., cost more than $3 million, said Waxman, who called the rate increases breathtaking.

In response to a public outcry over the company’s proposed hike, Congress is weighing a new plan that would create a new federal agency to oversee proposed rate hikes for health insurance.

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

At Wednesday’s hearing, WellPoint’s chief executive, Angela Braly, told the House panel that the rate increases were necessary 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 welcomes the scrutiny it is receiving, saying its rate increases are “actuarially sound and in full compliance with all requirements in the law.”

Waxman, chairman of the House Energy and Commerce Committee, said the company’s story is not one of higher costs: “The thousands of pages of WellPoint documents we have reviewed tell another story. They tell a story not about costs, but about profits.”

California Democratic Sen. Dianne Feinstein, who is 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.”

“The insurance industry reaps soaring profits by piling massive financial burdens onto consumers,” Feinstein said.

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 at least 25 states give their insurance commissioners some type of authority to review or regulate premium hikes.

“California is not one of those states,” she said. “That needs to change.”

In addition, the bill would require companies to justify their premium increases and would give the secretary of HHS the authority to deny any rate increases that the government found to be unjustified.

The Medical Insurance Rate Authority would advise the secretary and have 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,” said Mississippi Gov. Haley Barbour.

“My initial reaction is I’m not wild about it,” said Virginia Gov. Bob McDonnell. He said a rate authority board might be a good idea if it’s 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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