UPDATE 2-Health insurer WellPoint sees growth from exchanges

Fri Mar 21, 2014 11:41am EDT

(Adds comments on Medicare Advantage and exchanges)

By Caroline Humer

March 21 (Reuters) - WellPoint Inc, the United States' second largest insurer, on Friday said it expected to add 1 million to 1.3 million members by the end of the year partly due to growth on the new Obamacare exchanges.

WellPoint, which operates Blue Cross Blue Shield plans in 14 states, said because of that growth it now expects net income of more than $8.20 per share, up from more than $8.00. That puts its forecast closer to analysts' expectations for earnings of $8.37 per share, according to Thomson Reuters I/B/E/S.

Shares were up 1.4 percent, or $1.43, at $101.25 in morning trading on the New York Stock Exchange.

WellPoint Chief Executive Officer Joseph Swedish said during an investor conference that the company is preparing for growth during the next five years, when it expects to add 4 million new members for a total of 40 million members by 2018.

Many of those will be from the exchanges, which were created under the Affordable Care Act, often called Obamacare, to provide insurance to individuals and offer subsidies based on income levels.

Swedish, who was appointed a year ago, also said the company was targeting long-term earnings growth of 10 to 14 percent.

Swedish said that while the rollout of the public exchanges had been lumpy, it had signed up 500,000 new members in January. "It's clear that we have been a winner with respect to how that has played out," he said.

WellPoint's president of its commercial business, Ken Goulet, said that its new exchange customers' profiles looked as expected, and that therefore the company believes it priced the plan premiums correctly. Some national competitors have said the population was older than it had expected and said they are losing money on the business.

He said that age, predictive models on spending, and the number of prescriptions for the new customers were showing that the members are not sicker than it had forecast.

WellPoint is on target for enrollment after a very slow start to sign-ups last fall due to the broken exchanges, he said.

"At the end of November we had triple-digit numbers across all markets. But that grew substantially in December and has been growing since," Goulet said.

The government recently said that it has signed up 5 million people for health coverage through the exchanges, which sell insurance with income-based subsidies to individuals. The exchanges began selling insurance in October but were ridden with technology problems that slowed sales in most states.

WellPoint Chief Financial Officer Wayne DeVeydt said that based on numbers released in February by the Congressional Budget Office, the health insurer could add 3 million members through the public insurance exchanges by 2018.

DeVeydt said that the insurer could add 1.5 million new members through the expansion of Medicaid for the poor. The exchange growth represents $16 billion in revenue while the growth in Medicaid health coverage for the poor would add $6 billion, he said.

MEDICARE ADVANTAGE

WellPoint's head of government business, Richard Zoretic, said that the company's Medicare Advantage business for seniors should have operating results in 2014 that exceed 2013. But cuts proposed for 2015 will push payments down as much as 5 percent to 6 percent next year, he said, and that will hurt profit.

"In 2015 we expect margins to be pressured by reductions in (government) reimbursements," Zoretic said. "The goal is to mitigate the impact."

The government agency that oversees Medicare, the Centers for Medicare and Medicaid Services, announced its proposal for 2015 plans last month and on April 7 will release the final numbers. (Reporting by Caroline Humer; Editing by Stephen Powell)

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