(Reuters) - WellPoint Inc WLP.N on Wednesday said that its Obamacare exchange business was sustainable so far, echoing comments from another major insurer last week that these new customers have cost as much as expected, not more.
The report lifted shares in WellPoint, the second-largest U.S. health insurer, by about 5 percent and gave its next largest competitor Aetna Inc (AET.N) a 1.5 percent increase as it eased some investor concerns about the profitability of this business.
“They are saying that there were no issues in the exchange experience so far. They are growing gang busters if you will. Even if there were any issues that manifested themselves going forward, they have very strong reserves and good overall results,” Leerink Partners analyst Ana Gupte said.
The exchanges, created under President Barack Obama’s healthcare reform law, have sold new health plans to more than 8 million people. Insurers, and critics, have worried about the health of these new customers and whether the business will be a drain on insurers and U.S. taxpayers.
WellPoint is selling individual policies on the new exchanges in the 14 states where it operates Blue Cross Blue Shield plans. It has the most total customers on the exchanges, about 150,000 more than Aetna, which is in 17 states.
WellPoint said it added 400,000 new customers during the quarter and expects a total of 600,000 this year after it accounts for all enrollees, including those who signed up after a February 15 cut-off for March 1 coverage.
The business is “in the green”, with profit margins of 3 to 5 percent, its top finance executive said.
The age and general characteristics of the customers as well as the type of insurance coverage they have purchased were in line with the premium prices it set, WellPoint said, similar to the experience Aetna Inc described last week.
WellPoint Chief Financial Officer Wayne DeVeydt cautioned he wants to see the remaining enrollments in the second quarter before declaring a win.
“I want to make sure that converts before we officially say that we’ve got it all right, but it’s very encouraging right now,” DeVeydt said.
The results underscored the company’s improved outlook for 2014, which it raised by about 20 cents per share to at least $8.40 per share, excluding items.
WellPoint’s comments were more positive than Aetna‘s, which said that pricing had been in line with customer demographics but that ultimately it continued to see the business as a “headwind” for 2014 results.
Like Aetna, WellPoint also said it is keeping an eye on the costs of the pricey new hepatitis C treatments, which cost $50 million in the first quarter alone. It has built in $100 million in additional hepatitis C drug costs for 2014, the company said.
Gilead Sciences’ (GILD.O) new treatment Sovaldi broke sales launch records during the first quarter with its $84,000 price tag. An estimated 3.2 million Americans have this virus that can cause liver wasting disease and for the first time, this drug promises many of them a cure.
Net profit fell during the quarter, largely because of investment spending related to healthcare reform and higher administrative costs of adding new commercial customers.
WellPoint, which runs Anthem and Empire Blue Cross Blue Shield plans, reported net income of $701 million, or $2.40 per share, down from $885 million, or $2.89 per share, a year earlier.
Excluding net gains on investments, WellPoint’s profit was $2.30 per share. Analysts on average had expected $2.12, according to Thomson Reuters I/B/E/S.
The company said it had spent less on medical claims than expected, partly due to bad weather. Taxes were also lower than expected, while overall costs remained constrained.
The company added 1.2 million members in its commercial business, which includes large national employers, local employers and the individual markets.
Reporting by Caroline Humer; Editing by Lisa Von Ahn, Chizu Nomiyama and Sofina Mirza-Reid