IBJNews

WellPoint: Consumers will control health insurance

Back to TopCommentsE-mailPrintBookmark and Share

The future of health insurance is lower profit margins and greater consumer control. WellPoint Inc. just bet $900 million on it.

The Indianapolis-based health insurer on Monday said it would acquire Utah-based 1-800-Contacts Inc., a contact lens and eyeglass retailer, from Fenway Partners, a private equity firm based in New York.

WellPoint did not disclose financial terms of the deal, but several news outlets, citing unnamed sources, reported a price tag of $900 million.

WellPoint’s profit margins are being squeezed by the 2010 Patient Protection & Affordable Care Act, which mandated additional requirements for health insurance coverage while also insisting that insurers take no more than 20 percent of customer premiums for overhead or profits.

Last year, WellPoint’s profits amounted to 4.4 percent of total revenue, and Wall Street analysts expect that number to shrink going forward, leading to consolidation among health insurers.

1-800-Contacts, meanwhile, sports double-digit profit margins, according to WellPoint officials. The retailer's revenue is about $400 million, according to Wall Street analysts, and has been growing about 10 percent each year.

“Most specialty businesses, especially direct-to-consumer segments, generate unregulated earnings for WellPoint,” Barclays Capital analyst Joshua Raskin wrote in a research note Monday. “This is very attractive in light of the restrictions on cash generated at WellPoint’s regulated subsidiaries.”

Perhaps even more important to WellPoint is that financially strapped employers plan to shift more costs—as well as decision-making—to their workers. That threatens to disrupt WellPoint’s well-established advantages selling to corporate purchasers.

A year ago, WellPoint indicated that its future growth would hinge on individual and senior health coverage.

In a survey released last week by PricewaterhouseCoopers, more than 40 percent of employers said they are “somewhat likely” to shift their health plans to a defined contribution arrangement. That means employers would give their employees a certain amount of money to go out and buy health insurance—and possibly vision and dental insurance, as well.

About the same percentage of employers said they were likely to cover their employees through government-run insurance exchanges, called for by the 2010 health reform law. Consultants expect employers to give their employees a few thousand dollars to help cover the cost of insurance in those exchanges.

Even more employers—nearly 50 percent—say they are somewhat likely to cover their employees through private exchanges, such as those run by California-based eHealthInsurance or Minnesota-based Bloom Health.

WellPoint and two other health insurers acquired a controlling stake in Bloom Health last fall.

“Over time, the consumer will become the primary purchaser,” Wayne DeVeydt, WellPoint’s chief financial officer, told Bloomberg News.

Under the 2010 health reform law, the number of Americans covered by individual health insurance is expected to grow by 22 million. Enrollment in private exchanges would be on top of that.

WellPoint is already the largest seller of health plans to individuals, covering 1.9 million Americans. But Bloomberg noted that other insurers are pursuing similar strategies, with Aetna Inc. announcing it will sell coverage this year through Costco Wholesale Corp.’s stores.

“Health reform really accelerated the movement to the consumer-purchasing environment, but we still see it occurring no matter what,” DeVeydt said.

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. I had read earlier this spring that Noodles & Co was going to open in the Fishers Marketplace (which is SR 37 and 131st St, not 141st St, just FYI). Any word on that? Also, do you happen to know what is being built in Carmel at Pennsylvania and Old Meridian? May just be an office building but I'm not sure.

  2. I'm sorry, but you are flat out wrong. There are few tracks in the world with the history of IMS and probably NO OTHER as widely known and recognized. I don't care what you think about the stat of Indy Car racing, these are pretty hard things to dispute.

  3. Also wondering if there is an update on the Brockway Pub-Danny Boy restaurant/taproom that was planned for the village as well?

  4. Why does the majority get to trample on the rights of the minority? You do realize that banning gay marriage does not rid the world of gay people, right? They are still going to be around and they are still going to continue to exist. The best way to get it all out of the spotlight? LEGALIZE IT! If gay marriage is legal, they will get to stop trying to push for it and you will get to stop seeing it all over the news. Why do Christians get to decide what is moral?? Why do you get to push your religion on others? How would legalizing gay marriage expose their lifestyle to your children? By the way, their lifestyle is going to continue whether gay marriage is legalized or not. It's been legal in Canada for quite a while now and they seem to be doing just fine. What about actual rules handed down by God? What about not working on Sundays? What about obeying your parents? What about adultery? These are in the 10 Commandments, the most important of God's rules. Yet they are all perfectly legal. What about divorce? Only God is allowed to dissolve a marriage so why don't you work hard to get divorce banned? Why do you get to pick and choose the parts of the Bible you care about?

  5. Look at the bright side. With the new Lowe's call center, that means 1000 jobs at $10 bucks an hour. IMS has to be drooling over all that disposable income. If those employees can save all their extra money after bills, in five years they can go to the race LIVE. Can you say attendance boost?

ADVERTISEMENT