Former Anthem Blue Cross president says she fought 39% rate hikes

The abrupt resignation last month of Anthem Blue Cross’ president is offering a glimpse of an internal struggle that has roiled California’s largest for-profit health insurer for months.

Leslie Margolin was the public face of Anthem this year when it sought to raise individual insurance rates as much as 39%. The move triggered a backlash in Washington and Sacramento, where lawmakers accused Margolin and her corporate bosses at insurance giant WellPoint Inc. of trying to gouge unknowing policyholders.

Margolin, 55, generated headlines statewide when she was called to testify before angry lawmakers in the state capital. With television cameras rolling, the hearing’s chairman stared her down and asked bluntly: “Have you no shame?”

Now, speaking publicly for the first time since her departure, Margolin says she had been chagrined over the rate hikes for the last year and had worked internally to get Indianapolis-based WellPoint to rescind them or scale them back, and to apologize.

“I thought the rates were too high,” she said. “I thought the impact on our membership was too significant.”

Margolin did not object to the rates in her Sacramento testimony this February. But in the months that followed, she repeatedly voiced her objections to WellPoint and in appearances outside the company, remarks that went largely unnoticed by the public.

In a March talk at Pepperdine University’s business school, for instance, she told a gathering of students and business leaders that she wasn’t responsible for rate increases she believed were ill-timed and ill-advised.

“We have impacted individual consumers in ways that were so significant for those individuals,” she said. “And for that, I personally feel very, very sorry.”

As she made the Pepperdine appearance and others, Margolin said, she privately pressed WellPoint to abandon the company’s get-tough approach to longtime adversaries — doctors and hospitals — and instead collaborate as part of a new “healthcare transformation strategy” to cut costs and improve patient safety and the quality of care.

Last month, WellPoint replaced her. At the time, Margolin said her departure was a mutual decision. Interviews with company insiders, insurance industry leaders and others familiar with the situation now make clear that she was pushed out.

“Her undoing was that she rocked the boat and wanted to do things a different way,” said one person familiar with the events who declined to be identified for fear of retribution. “She wasn’t a good corporate soldier.”

Margolin herself spoke cautiously about her resignation, but said: “There is no question I needed to leave.”

WellPoint declined to make Chief Executive Angela F. Braly available for an interview. Company spokeswoman Kristin Binns would say only that Margolin’s exit had nothing to do with the rates.

In a statement issued at the time of her July 20 resignation, the insurer praised Margolin for collaborating with hospitals and other providers, and for championing “innovative initiatives” to improve patient safety and the quality of healthcare. “Anthem would like to thank Leslie for her leadership and commitment to the company over the past two years.”

In January 2008, when Margolin arrived at Anthem — WellPoint’s largest subsidiary — she found a company besieged by accusations that it cared more about profit than the health and well-being of its customers. Anthem had a reputation for waging aggressive contract negotiations with hospitals and doctors, displaying what one former executive called a “take-it-or-leave-it attitude.”

Consumers and regulators condemned the company for its practice of canceling insurance policies of customers who became ill — a controversy that led to a $10-million state fine. Healthcare advocates took issue with Anthem for fighting efforts by Gov. Arnold Schwarzenegger and lawmakers to pass a package of state healthcare reforms.

Margolin said she tried to mend the many frayed relationships, visiting Schwarzenegger officials, regulators and others to inform them that Anthem was interested in forging new partnerships.

“When she came to work at Anthem, she was a breath of fresh air,” said Daniel Zingale, a former senior healthcare advisor to Schwarzenegger. “She seemed to have a very constructive approach to reforming the healthcare delivery system. It was kind of a surprise, but a welcome one.”

Despite her title, Margolin had limited power to alter Anthem’s culture and policies. She was in charge of a branch of the company that sold “group” insurance to employers; her business accounted for about half of Anthem’s 8 million customers.

A separate “consumer division,” headed by WellPoint executive Brian Sassi, oversaw insurance for individual policyholders in the 14 states where the company operates. WellPoint would not make Sassi available for an interview.

Last fall, as WellPoint’s consumer and actuarial divisions prepared the 2010 California rate hikes, Margolin and others voiced concerns about the size of the increases and their timing, according to people familiar with the process. The new rates would follow double-digit hikes in 2009 and arrive just as lawmakers in Washington were debating healthcare reform.

Regardless, the company proceeded and began mailing notices to customers in January, triggering a backlash among furious policyholders and a blitz of media coverage. Within days, the furor caught the attention of the Obama administration. U.S. Health and Human Services Secretary Kathleen Sebelius fired off a letter to Margolin, demanding that she justify the rates.

By that time, consumers’ anger with Anthem had reached a fever pitch. After someone posted Margolin’s address on a healthcare website, WellPoint hired armed guards to stand watch outside her Altadena home.

“It was a very frightening time in my life,” Margolin said.

As Margolin fended off mounting criticism over the Anthem rates, she said, she waged her internal campaign for her reform plan. She argued that any savings should be used in part to ease prices for consumers, with the rest shared among Anthem and the healthcare providers that would participate in her “transformation strategy.”

WellPoint rejected the strategy, according to people familiar with the deliberations, and last month told Margolin that her services were no longer needed. She decided to use the strategy as a template to launch a private healthcare reform initiative with hospitals and medical groups in California.

Margolin vividly recalls her last day. Even though her Anthem team was exceeding its financial goals and membership numbers, she said, she was ushered from the doors of Anthem’s Woodland Hills headquarters. She didn’t have a chance to send a farewell message to her 400 employees.

“I believe I had the strongest and most committed team in the industry,” Margolin said. “I would have liked to have thanked them for a job well done.”