Anthem data breach poses a big test for its CEO

Anthem's massive data breach poses a big test for the health insurer's chief executive, Joseph Swedish

In unusually blunt terms, the chief executive of Anthem Inc. told investors recently that his company and the health insurance industry rank last in customer service.

That was before the insurance giant disclosed a massive data breach last week affecting as many as 80 million Americans. Now, there's a lot at stake in how CEO Joseph Swedish handles his first full-blown crisis at the nation's second-largest health insurer.

Until now, Swedish, 63, had largely succeeded at keeping the company out of trouble while trying to make the company more responsive to consumers who are increasingly calling the shots on their own insurance. In stark contrast, his predecessor lost her job running the company in 2012 after several well-publicized gaffes.

Swedish's fate may hinge on what several government investigations turn up and how well he can address customers' concerns. After all, the CEO at retailer Target Corp. didn't survive his company's credit-card data breach.

"If Anthem was negligent or it's something that could have been avoided, that will not bode well for his tenure as CEO," said Ana Gupte, a healthcare analyst at Leerink Partners. "If he comes out of it well, it's another feather in his cap."

Last week, Swedish received high marks for quickly disclosing the incident to law enforcement and consumers. On Feb. 4, shortly before the news broke, he called top officials at the White House and U.S. Department of Health and Human Services to alert them.

Swedish also signed an email to customers that same night saying he shared their frustration because his own personal information was hacked along with that of other Anthem employees.

But there's also been growing criticism of the company for not taking the basic step of encrypting people's Social Security numbers and other personal details that were stolen from its vast database. The company disclosed Thursday that customer data in the breach dates back to 2004.

Investigations by federal officials and state insurance commissioners are looking into whether Anthem took sufficient security measures. Those inquiries could find that the Indianapolis company failed to heed earlier government warnings and didn't do enough to safeguard customers' data.

Industry analysts said that outcome could lead to government sanctions such as hefty fines and suspension of the company from key government programs like Medicare Advantage or bidding for state Medicaid contracts.

Starting Friday, Anthem will take another step toward limiting the fallout for consumers by letting them enroll in two years of free identity-theft protection and credit monitoring at http://www.anthemfacts.com.

"It's my view that how we engage with our members and customers in difficult times truly defines our relationship with them," Swedish said in an email to The Times. "We will continue to do everything in our power to make our systems and security processes better and more secure. Our primary goal is to earn back their trust and confidence in Anthem."

Megan Burns, a vice president and principal analyst at Forrester Research Inc. in Cambridge, Mass., said the data breach, while unfortunate, has presented Anthem an opportunity to demonstrate its new commitment to customers.

"It might be even easier than trying to change larger, more day-to-day operations," Burns said. "I don't think anyone holds up the health insurance industry as a paragon of consumer experience. They still have a long way to go."

Forrester's annual consumer survey on large companies is what Swedish frequently cites. In the most recent report last year, Anthem ranked last among the health insurers rated with a score of 58 out of 100. It was just one point above Medicaid, the government insurance program for the poor, and far behind industry leader Kaiser Permanente with a score of 76.

As an industry, health insurers have ranked last in the survey every year since 2007, trailing retailers, banks, airlines and even cable companies.

For some consumers, of course, nothing Anthem does now will erase years of frustration over hefty rate increases, denied claims and dismal service.

Anthem policyholder Josh Libresco of San Rafael, Calif., faces an 8% rate increase in April and called the company this week to complain about a hospital bill he thought had been resolved by the insurer in December.

"It's frustrating every time you call them," he said. "They have no sense of the customer, and they make no effort."

Swedish is well aware of those gripes. It's imperative, he said, for the company to address those criticisms because Anthem is increasingly selling directly to consumers rather than just a select group of brokers and human resources managers.

Although large employers still command considerable attention, the company expects future growth will come primarily from individual shoppers.

"Historically, health insurance in the U.S. has been provided through employer-sponsored coverage," Swedish said at a healthcare conference last month. "But this is shifting toward the individual consumer rapidly."

To broaden the company's appeal, Swedish has been willing to try new things.

Late last year, he hired the company's first chief consumer officer. About the same time, he unveiled an unusual partnership with seven big hospital systems in Southern California, including Cedars-Sinai Medical Center and UCLA. The Vivity health plan marked a turnabout. Not long ago, Anthem was publicly chastising those well-known hospitals for excessive prices.

The other major break with Anthem's past was on the Affordable Care Act. Swedish embraced the health law and became a key ally for the Obama administration during its disastrous rollout.

Anthem leads the nation with more than 700,000 people enrolled in Obamacare coverage across 14 states, including California.

Buoyed by new business from the health law, the company's stock price has more doubled since Swedish took over in March 2013 while the broader stock market is up about 30%.

Anthem had annual revenue of $73 billion and profit of $2.6 billion last year. It has 37.5 million members overall, second only to UnitedHealth Group Inc. Swedish received $17 million in salary, stock and other compensation for 2013, the most recent figure available.

The company's previous CEO, Angela Braly, was ousted in 2012 after a series of missteps that sapped investor confidence.

One of her infamous moves came in 2010 when Anthem sought a 39% rate increase in California just as the Affordable Care Act was being debated in Congress. The proposed increase sparked national outrage and helped Obama win support for his signature law.

"She was responsible for putting Obamacare back on the table when everyone thought it was dead," said Robert Laszewski, a health insurance industry consultant in Alexandria, Va. "Swedish isn't tone deaf like she was."

chad.terhune@latimes.com

Twitter: @chadterhune

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