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WellPoint profit continues health insurance rally

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WellPoint Inc.’s better-than-expected profit in the first quarter continued a rally among health insurers this month.

Indianapolis-based WellPoint reported Wednesday that it earned $926.6 million, or $2.44 a share, in the three months ended March 31. Excluding investment gains and special items, WellPoint’s profit rose 2.2 percent, to $891 million, or $2.35 a share.

On that basis, Wall Street analysts were expecting $1.87 a share, according to a survey by Thomson Reuters.

WellPoint responded by boosting its full-year profit forecast by 40 cents a share.

On Tuesday, Louisville-based Humana Inc. reported quarterly earnings that soared 63 cents above analysts’ expectations. It raised its full-year profit forecast by 75 cents a share and announced it would begin paying a dividend,

And on April 21, Minnesota-based UnitedHealth Group reported first-quarter profit that was 33 cents a share higher than analysts had forecast.

Since UnitedHealth’s announcement, stocks of health insurers have surged in value. WellPoint shares had risen more than 5 percent since then, even before Wednesday’s earnings news. The company’s stock price rose another 1.7 percent on the news Wednesday morning.

The main factor driving the insurers’ healthy profits are that health care spending has been lower than expected and employment has improved slightly, putting more people on the rolls of employer-sponsored health plans. Also, the profit pressure of the 2010 Patient Protection and Affordable Care Act has not been as great as many expected.

“The company has more breathing room under the new rules than previously expected, more opportunity to improve margins,” Jason Gurda, an analyst at Leerink Swann & Co. in New York, told Bloomberg News. “I would not say reform was a big plus for insurers, just that its negative impact appears less than feared.”

A year ago, WellPoint earned $1.95 a share, excluding special charges. Much of the per-share profit increase this year is due to WellPoint’s share repurchase program, which reduced its shares outstanding by 15 percent in the past year.

First-quarter revenue fell 1.2 percent compared to a year ago, to $14.9 billion.

“Our membership and earnings results are higher than we originally anticipated and we are continuing to become a more efficient and effective company,”  WellPoint CEO Angela Braly said in a statement.

Indeed, WellPoint added 875,000 new members to its health plans in the first quarter, seeing growth across all business lines except individual policies.

The company had 34.2 million members on March 31, and now predicts it will hold on to more of them during the year, finishing 2011 with 33.9 million members.

For the year, WellPoint now expects earnings per share of $6.70, compared with a February forecast of $6.30 a share.

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