Insurer WellPoint's 1Q profit falls as costs climb

AP News
Posted: Apr 25, 2012 6:05 PM
Insurer WellPoint's 1Q profit falls as costs climb

WellPoint Inc.'s first-quarter net income fell nearly 8 percent as enrollment slipped and expenses rose, but results beat analyst earnings expectations and the health insurer raised its forecast for 2012.

The Indianapolis company said Wednesday that it expects its capital management to improve after earning $169 million in investment income in the first quarter. Company leaders also said they anticipate improvements in their main businesses and more growth from a Medicare Advantage segment that hurt WellPoint last year.

Medicare Advantage plans are privately run, government-subsidized versions of the government's Medicare program for the elderly. WellPoint took a $150-million hit last year when a Medicare Advantage plan it has since discontinued attracted more customers with a higher risk profile than the insurer expected. Those customers generated more in claims than they provided in premiums.

In this year's first quarter, WellPoint gained 165,000 Medicare Advantage members as it integrated CareMore Health Group, a plan provider acquired last year.

WellPoint now expects 2012 adjusted earnings of at least $7.65 per share, up from a previous forecast for at least $7.60 per share. But that is still below analysts' estimates for earnings of $7.72 per share.

For the first quarter, WellPoint reported net income of $856.5 million, or $2.53 per share, down from $926.6 million, or $2.44 per share, a year earlier.

Excluding investment gains, WellPoint earned $2.34 per share in this year's first quarter.

Operating revenue climbed 3.4 percent to $15.15 billion.

Analysts surveyed by FactSet expected, on average, earnings of $2.27 per share on $15.41 billion in revenue.

WellPoint is the second-largest health insurer after UnitedHealth Group Inc. It runs Blue Cross Blue Shield plans in 14 states, including California, New York and Ohio.

Total medical membership fell nearly 2 percent to 33.7 million people compared to the end of last year, as WellPoint lost enrollment in plans that provide health insurance to employees of small businesses and large, national accounts.

WellPoint's largest expense, the amount it pays in medical claims, rose 4.8 percent to $11.77 billion in the quarter. WellPoint and competitor UnitedHealth Group Inc., which reported earnings last week, both say rising prices for care were the biggest factor driving up their expenses, but they also say health care use is starting to pick up again as they expected.

Insurers have been helped the past several quarters by health care use that grew at lower-than-expected rates, a trend many attribute to a lingering pullback on consumer spending from the recession. WellPoint said Wednesday that while use is picking up, it still remains below pre-recession levels.

"People get more comfortable with their financial position, and they'll begin to use care again," Chief Financial Officer Wayne DeVeydt said, adding that an aging population and an extra day due to leap year also helped increase medical claims in the first three months of 2012. An unusually warm winter in many parts of the country also contributed because bad weather tends to keep people home and out of the doctor's office.

WellPoint's stock sank in January after it reported the Medicare Advantage hit and a fourth-quarter performance that missed analyst expectations.

The insurer did not beat first-quarter expectations or raise its earnings forecast by huge margins, Citi analyst Carl McDonald said in a research note. But he added that his "sense heading into the quarter was that WellPoint just needed to not miss" expectations again in order to get a positive stock reaction.

WellPoint shares fell 36 cents to close at $70.40 Wednesday, while the Standard & Poor's 500 index advanced over 1 percent.