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Obamacare exchanges could zap WellPoint profits

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The big question for WellPoint Inc. is how much profit it will lose when the full impact of President Obama’s 2010 health reform law hits next year.

According to one estimate, the Indianapolis-based health insurer will shed $100 million in pre-tax profits in each of the next four years, due to small employers sending their workers to buy health insurance in new government-run exchanges that will begin on Jan. 1.

The exchanges, which are the centerpiece of Obama’s health law, will be online marketplaces operated by state governments and by the federal government. They will allow individuals to choose coverage from different insurers and receive a taxpayer-funded subsidy. Subsidies will be paid to households with incomes less than 400 percent of the federal poverty line, or about $92,000 for a family of four.

WellPoint executives have said they expect the company's profit margins from small employers to be cut in half in the exchanges, due to competition and restrictions on their plans imposed by the health reform law. The profit margins would be reduced to a “low- to mid-single-digit” range.

That reduction would total $400 million by 2017, or about 11 percent of WellPoint’s annual pre-tax profits, according to Chris Rigg, a health insurance analyst at Susquehanna Financial Group Inc., in an April 24 note to investors.

WellPoint executives have affirmed the estimated $400 million hit to its pre-tax profits, but they have not issued a prediction on how fast its small-employer clients will shift to the exchanges.

Rigg’s estimate predicted that 25 percent of WellPoint’s small-business customers will start buying WellPoint coverage through Obamacare’s exchanges in each of the next four years.

Rigg also assumed that WellPoint will keep all of its small-business health plan members, which now total 2 million people. That group of customers represents a huge chunk of WellPoint’s annual profits.

Of course, WellPoint could end up losing those customers to competing insurers when they switch to buy coverage in the exchanges. The 2010 Patient Protection and Affordable Care Act establishes four standard categories of insurance coverage so customers can easily compare different insurers' prices.

But WellPoint has spent $150 million trying to make sure the exchanges actually become an opportunity for growth. WellPoint has conducted exchange simulations with 55,000 people in eight states to figure out what features will make them most likely to buy an insurance policy on the exchanges.

“So we think with this research, we are very well positioned in our product design, in our marketing strategies and more importantly, in our pricing,” said Wayne DeVeydt, WellPoint’s chief financial officer, during a March 12 presentation at the Barclays Healthcare Conference.

Indeed, price was the No. 1 factor that could sway consumers' decisions in the exchanges, according to DeVeydt.

“Price mattered most and people are willing to do trade-offs for price. What we found second was brand mattered a lot,” DeVeydt said. He added, “And then we found everything else was a very distant third place of what mattered.”

With Obamacare’s expansion of the low-margin Medicaid business and Congress’ continued crimping of profit margins in Medicare Advantage plans, WellPoint’s future looks to feature higher volumes at lower profits.
 

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  • obamacare bpo
    OBAMACARE enhances outsourcing. Enacted in July 2010, The U.S. healthcare reform (“ObamaCare” or the “Patient Protection and Affordable Care Act”) is intended to pressure large and small employers through force and taxation. The result will show companies deciding to send customer support, sales, lead generation and appointment setting jobs offshore or risk going out of business. U.S companies can take advantage of a dedicated bilingual employee who is 100% committed to their project. ESL nearshore employees in Costa Rica are just as or more effective than transitional in-house employees. In addition, giving the business the freedom to scale up their offshore staff strength without getting caught in the Obamacare challenge in 2014.
  • Private Insurance Isn't Necessarily the Problem
    Properly regulated, private insurance can work out swimmingly: See also Switzerland. Our stunning price increases come from the consolidation of the providers into regional syndicates that now have the power to dictate prices to insurance carriers, rather than the other way around. I strongly recommend (if you haven't read it already) the Time magazine article from about two months back about medical expenses--it is quite long but well worth taking the time to digest.
  • The truth exposed
    For years, the insurance companies have fed us the cock and bull story that rates are rising because the "pool" doesn't include otherwise healthy young people who refuse to buy insurance. Well boys and girls, here they come. Let the rate cutting begin (unless you were lying the whole time).
  • CHarlie Charlie Charlie
    Sippin too much of the Fox News Kool-Aid it seems!
  • Really Steve
    So you think that if Wellpoint's profits drop they are suddenly going to see the light and change their evil ways? Really? No, they are going to deny reimbursements at an even higher rate just to keep the profits from the premiums being paid into the system. How does that help anyone?
  • Good
    It may not be good for some Indianapolis companies, but in a perfect world (or most other countries in the world) WellPoint wouldn't exist. Health insurance companies and hospitals artificially jack up prices to make HUGE profits. I guess we can thank Obama for at least attempting to fix the problem, but it will persist until we get rid of private health insurance all together.
    • read article
      Charles, The article is about Wellpoint's potentially reduced profits, not the failure of Obamacare. There are actually some people that believe that having bloated insurance companies stand between patients and their care is part of the problem.
    • crumble
      A lot of people think the GOP needs to put a stop to obamacare or defund it. Obama would love that attempt so he can badmouth GOP as with every situation. Obamacare is a complete disaster and isn't even fully implemented. Even demorats are starting to admit this. obamacare is going to crumble under its own weight. obama presidency is a fraud and his legacy will be failed healthcare and massive debt, more poverty, higher gov dependence. well done america. the results of our president are a result of the lack of intellect of the majority.

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