By Caroline Humer
Jan 29 U.S. health insurer WellPoint Inc
said on Wednesday the applicants for the new Obamacare health
plans are of the age and demographics it had expected,
indicating that medical costs will not soar beyond the prices it
WellPoint, which released lower fourth-quarter results on
Wednesday, said that based on age, insurance plan selection,
income levels, gender and available pharmacy data, it believes
it has set the right premium rates for these new customers.
Insurance plans under President Barack Obama's healthcare
reform law went on sale Oct. 1 and into effect on Jan. 1.
Initial enrollment data nationwide has shown that the first
wave of people who enrolled are older people who can be more
expensive to insure because they often have more health problems
than young people.
Shares in WellPoint rose about 3 percent, or $2.75, to
$87.05 in morning trading after the comments. Competitor Aetna
Inc shares rose 39 cents to $69.32 while UnitedHealth
Group Inc gained 33 cents to $72.03.
"There was a concern that a lot of the firms that were
involved in the exchanges would be underpriced for the
demographic that would find the exchanges appealing, at least
over the first year," Morningstar analyst Vishnu Lekraj said.
"What they said was that they priced everything
appropriately given the data they have currently, in terms of
medical cost utilization," Lekraj said.
WellPoint, one of the biggest players on the exchanges, said
that it was still not certain about how enrollment, which is
open until March 31, would finally end up, contributing to
uncertainty about its 2014 earnings.
The company forecast earnings of above $8 per share in 2014,
representing a likely drop from the $8.52 it earned in 2013
before special items. Analysts on average were expecting 2014
earnings to fall to $8.39 per share, according to Thomson
Chief Financial Officer Wayne DeVeydt said the 2014 outlook
reflects about a $100 million negative effect of changes in
government policy regarding the rollout of Obamacare. Late last
year as political pressure mounted around technology problems on
the exchanges and the higher premium rates on new plans, the
Obama administration said that older individual plans could be
renewed and it increased the number of people eligible for
DeVeydt said ACA insurer fees, which are not tax deductible
for insurers, would cost earnings $1.10 per share and that it
would spend about $30 million on first-year exchange costs.
FOURTH-QUARTER PROFIT FALLS
WellPoint said fourth quarter profit fell as consumers
increased their use of medical services ahead of the
cancellation of some insurance plans at the end of 2013.
The company also took a charge for the recently announced
sale of its contact lens business, 1-800 Contacts, to private
equity firm Thomas H. Lee Partners, which caused a sharp decline
in net profit.
WellPoint, which sells Empire and Anthem Blue Cross Blue
Shield plans, also said its costs went up as it prepared for the
rollout of Obamacare, and an expected increase of 1 million new
members this year.
So far, about 3 million people have enrolled in exchange
plans, according to the government. The Congressional Budget
Office had forecast that about 7 million people would sign up
for 2014 coverage.
Sign-ups are lagging targets because of technology problems
in the first two months after the launch of the national website
HealthCare.gov that sells insurance plans in 36 states. The
other 14 states run their own sites.
WellPoint said it had received 500,000 applications for new
individual health plans that went into effect Jan. 1, most of
them for exchange-based plans but some for plans it sells off
the exchange. Income-based subsidies from the government are
only available for exchange plans. It said most of these
customers were new to WellPoint.
WellPoint said net profit for the fourth quarter fell to
$148.2 million, or 49 cents per share, from $464 million, or
$1.51 per share a year earlier. Excluding costs for the sale of
1-800 Contacts and investment gains, earnings fell to 87 cents
per share from $1.03 per share, which also included investment
gains and acquisition costs.
The quarterly earnings were in line with analyst
expectations, according to Thomson Reuters I/B/E/S.
The company spent 87.8 percent of its premiums brought in on
medical claims, up from 87.3 percent a year ago. It said that as
old individual plans were being canceled ahead of the
introduction of the new 2014 insurance, customers used more
Spending on medical procedures, doctor visits and
hospitalizations has been at a historical low for the past
several years. This has helped insurers keep these medical cost
ratios down while still complying with the Affordable Care Act,
which requires them to spend at least 80 percent of plan
premiums on care or refund customers the difference.
WellPoint said it added 145,000 members during the quarter
as it picked up small business customers and new enrollees in
the California Medicaid program for the poor. It had 35.7
million members at the end of 2013.