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The Dose - JK Wall

Welcome to The Dose, which tackles the finances behind local health care and life sciences and points to the most interesting national analysis. Your host is J.K. Wall.

Health Care & Life Sciences / Life Science & Biotech

Despite exchange roller coaster, WellPoint says it's all going according to plan

January 29, 2014

Since the Obamacare exchanges' failure to launch in October and November, there have been fears that insurers' could lose their shirts in these new marketplaces, leading to a self-destructing pattern of rate hikes that would discourage healthy people from signing up.

Those are still legitimate concerns, but new numbers released by WellPoint today put a rosier cast on the situation.

As of last week, more than 400,000 customers had purchased health insurance from WellPoint via the Obamacare exchanges—more than the Indianapolis-based company expected.

And those customers aren’t any sicker or older than WellPoint predicted—so WellPoint still forecasts a small profit from them.

This is an important report for WellPoint, because the company is heavily invested in the exchanges.

It’s also an important report for Obamacare, because if WellPoint still thinks it can make a profit there, it suggests other insurers will stay in the game too.

“The volume that came in, in the month of December, early January, was much more than we could have ever anticipated,” said WellPoint Chief Financial Officer Wayne DeVeydt during a conference call this morning.

DeVeydt reitered that WellPoint still expects to earn profits of 3 percent to 5 percent this year on its exchange customers. That’s because—even though its 400,000 customers so far have been older and sicker than its typical individual customers in the past—WellPoint priced its products higher to account for those trends.

As an example, DeVeydt noted that WellPoint’s policies cost 20 percent to 30 percent higher than its competitors in some large cities. (That does not appear to be the case in Indianapolis, where the only other insurer, MDwise Inc., is typically the higher-priced plan.)

WellPoint is winning about the same sized chunk of market share in the exchanges as it had before in individual markets. And about two-thirds of its exchange customers were eligible for an Obamacare subsidy—similar to the individual market before.

Because its strategy has played out as planned, WellPoint CEO Joe Swedish remained positive on the impact of the exchanges on WellPoint’s business.

“While it is early, we are encouraged by the level of applications we received and the indicators that profile our risk pool,” he told investors this morning. “We believe our strategy and investment for exchanges, which are based on proprietary research and data-driven processes, are serving us well.”

What we don’t know is how many of its previous customers WellPoint is losing—both individuals that are choosing another insurer and small businesses that are coverage and dumping their employees into the exchanges.

That latter issue, as I wrote about last week, is real. And this morning, WellPoint officials concurred.

“There is dumping occurring for 2014,” Swedish told investors. But, he added, “We now believe this risk appears lower for 2014 than we originally anticipated.”

So it’s hard to tell if WellPoint’s gains on the exchanges are greater or less than its losses elsewhere. As I wrote about in December, some analysts have predicted that WellPoint will lose money overall on Obamacare this year.

But if it’s not losing money on the exchanges themselves, that means WellPoint isn’t likely to hike prices aggressively at the end of this year, scaring away young and healthy customers.

That’s encouraging news for those who would like the Obamacare exchanges to remain a viable option for customers, rather than a death spiral or a second-rate market avoided by everyone with another option.

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