* Fourth-quarter earnings beat analysts' estimates
* Membership rises, but company sees decline for 2013
* Quarterly results benefit from tax settlement
* Shares down less than 1 percent
By Caroline Humer
Jan 23 WellPoint Inc reported a
higher-than-expected fourth-quarter profit on Wednesday as it
kept medical costs down, but the second-largest U.S. health
insurer said it was taking a "prudent" view of 2013 in the face
of industry reform.
WellPoint, which sells private health insurance to
businesses and individuals and also provides government
insurance for the elderly and the poor, is preparing for a round
of changes resulting from the U.S. Affordable Care Act.
Later this year, states and the federal government will
begin selling health insurance on exchanges for 2014, and new
insurance taxes are on the way. Pressure on prices for medical
services is also a concern for insurers.
WellPoint Chief Financial Officer Wayne DeVeydt said the
company intends to sell insurance on the exchanges in the 14
states where it sells Blue Cross Blue Shield insurance plans,
whether the exchanges are run by the state or the Federal
"We expect this to be a growth opportunity," DeVeydt said
during an interview. "If you look at who is eligible for a full
or partial subsidy on the exchanges, that represents almost 66
percent of the U.S. population."
Amerigroup, which WellPoint bought in December because of
its marketshare in Medicaid insurance, is ready to tap into the
growing Medicaid market. That is expected to expand as a result
of the Affordable Care Act.
WellPoint said that given the "fluid and dynamic" market
over the next 18 to 24 months, it expected a 2013 net profit of
at least $7.60 per share, including the costs of integrating its
recent acquisition of smaller competitor Amerigroup.
Analysts on average have been expecting $7.98 a share,
according to Thomson Reuters I/B/E/S. It was not immediately
clear if the two numbers are comparable.
"It's lighter than we thought, but it's also including
Amerigroup's integration costs," Leerink Swann analyst Jason
Gurda said, so it was not clear that investors would be
disappointed by the outlook.
Shares of WellPoint were up 1.2 percent, or 79 cents, at
$64.59 in midday trading.
Management changes might be behind the conservative
forecast, Gurda said. WellPoint is being run by an interim chief
executive officer, John Cannon, who took over following the
abrupt resignation of Angela Braly in August.
DeVeydt told analysts on a conference call on Wednesday that
the company still expected to name a new CEO this quarter.
He said the 2013 outlook included 20 cents to 25 cents a
share in Amerigroup-related costs and $300 million in additional
investments. About half of that, or $150 million, will be spent
on technology links to the exchanges, he said.
Besides healthcare reform and broad-based cuts in government
medical payments, areas of uncertainty for this year include the
costs of the flu as more members visit the doctor and overall
use of medical services, DeVeydt said.
TAXES BOOST PROFIT
The company said that fourth-quarter net profit had risen to
$464.2 million, or $1.51 per share, helped by an income tax
settlement and investment gains.
WellPoint, which included Amerigroup figures in its earnings
report for the first time, said it had 36.1 million members as
of Dec. 31, up 5.5 percent from a year earlier.
It said it expected membership to drop in 2013 to a range of
35.3 million to 35.5 million. About half of that drop is due to
fewer employees in large-company, self-insured plans. The other
half is from expectations some individuals and small groups will
delay receiving insurance until Jan. 1, 2014 when the government
subsidies go into effect.
Ken Goulet, president of WellPoint's commercial business
unit, said during the conference call that he does not expect
employers to "dump" their workers onto the exchanges.
"We don't think it will be an avalanche early on, but it
will be moderate changes," Goulet said. He expects some small
business insurance customers will be the first to move their
business to the exchanges in order to take advantage of
government subsidies for their low-income workers who qualify.
Later, some large-company customers may also move, he said.
Excluding the tax settlement, investment gains and other
special items, the company said earnings had increased to $1.03
per share from 99 cents a year earlier.
On that basis, analysts on average had been expecting a
profit of 95 cents per share, according to Thomson Reuters
WellPoint said that lower-than-anticipated medical costs in
its private insurance business, stable membership numbers and
strong operating cash flow helped earnings during the quarter.
It said its fourth-quarter tax rate had been abnormally low
because of the settlement with the Internal Revenue Service.
Revenue for the quarter rose to $15.27 billion from $15.18
billion a year earlier.
WellPoint's results followed those of the larger rival
UnitedHealth Group Inc, which last week reported a
slight drop in net income and said the next two years had the
potential for growth and opportunity.