Health reform will make health insurance a less-profitable business, but Indianapolis-based WellPoint Inc. got a vote of confidence from bond analysts because health-reform rules have turned out milder than expected and WellPoint’s financial performance has been particularly strong as the economy recovers.
In a Monday report, Standard & Poor’s Ratings Service raised its outlook on WellPoint’s debt from “negative” to “stable.”
“WellPoint’s business and financial profile is relatively strong compared with its peers and the company is reasonably well-positioned to preserve its credit profile in an improving but still stressed marketplace,” analyst Joseph Marinucci said in a statement.
WellPoint itself has acknowledged that its growth won’t be returning to the glory days before the recession began in December 2007.
Whereas the company grew earnings per share by at least 15 percent and as much as 29 percent in the years 2005 to 2007, in the future it expects about 10-percent growth in earnings per share each year.
Last year, WellPoint earned $6.94 per share, but it expects this year’s profits to fall to $6.30 per share.
“We are acknowledging, even in our growth model, the potential for margins to tighten, but the opportunity for volume to grow,” WellPoint CEO Angela Braly said in February presentation to investors.
But now that unemployment is lessening, more people should have the income to buy health coverage or be landing jobs with employer-sponsored benefits.
Also, the U.S. government allowed health insurers to count several kinds of administrative costs as medical costs in meeting the health law’s requirement that at least 80 percent of premiums go toward medical care.
Those developments boosted Marinucci’s sentiments on the company’s prospects. He now expects its future financial results to only “marginally diminish.”
The biggest impact of health reform will hit the individual insurance market. Yet Marinucci expects individual business to account for less than 10 percent of WellPoint’s revenue this year.
“Ultimately, we believe that the health care reform law will result in federal and state programs that continue to work in concert with the private sector,” Marinucci wrote in a December report about all health insurers. “While we don't expect the roll-out to be destabilizing for the industry, the partnership between the government and private health insurers that is likely to result will introduce new long-term risks, principal among them being increasing budgetary pressures at the federal and state level.”