IBJNews

WellPoint fails to profit on consumer pullback

Back to TopCommentsE-mailPrintBookmark and Share

With recession-weary Americans going to the doctor less, health insurer WellPoint Inc. should be enjoying higher profits. But it isn’t working out that way.

Indianapolis-based WellPoint spent nearly 86 percent of insurance premiums collected on paying medical bills during its second quarter, substantially higher than the 83 percent it paid in the same quarter last year. And the company expects medical bills to remain elevated the rest of the year.

Those higher costs helped push WellPoint’s profit down 3 percent in the second quarter, to $702 million.

The blame for this was cast on WellPoint’s Medicare Advantage customers in northern California, who are racking up medical bills that exceed the premiums they’re paying. Many of these customers switched over to WellPoint this year after Philadelphia-based Cigna Corp. left the market. WellPoint officials said they did not set their prices high enough for the level of care these customers need.

But Citigroup analyst Carl McDonald said the Medicare issues were not enough to account for all of WellPoint’s woes during the quarter. He estimated that expenses for medical bills in the rest of WellPoint’s business rose nearly as much—with the problems most likely coming in its employer-sponsored, or commercial, health plans.

“That the commercial loss ratio deteriorated isn’t surprising,” McDonald wrote in a July 28 report, noting declines at other health insurers, UnitedHealthcare and Aetna. “However, the magnitude of the change is, particularly considering how favorable industry utilization has been.”

McDonald estimated the medical bills for employer-sponsored plans rose 4 percentage points in the second quarter—a huge increase. He titled his report, “What Do You Think Of Your Team’s Execution? Right Now, I’m In Favor Of It.”

WellPoint officials attributed its commercial business’s higher medical expenses—also known as a benefit-expense ratio—to the fact that it socked away more in reserves, about $300 million in the second quarter. That spending offset lower spending on health care by consumers.

WellPoint reported that the cost of medical care has been rising about 7.5 percent this year for its fully insured customers, down from historical norms of about 8.5 percent. Other health insurers have reported similar trends.

“Our commercial benefit-expense ratio was stable on a year-to-date basis as the impact of lower prior period reserve development was offset by lower than expected, underlying medical cost trends during the first six months of 2011,” WellPoint CEO Angela Braly told investors and analysts during a July 27 conference call. She called the performance in WellPoint’s commercial business “strong.”

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'm sure Indiana is paradise for the wealthy and affluent, but what about the rest of us? Over the last 40 years, conservatives and the business elite have run this country (and state)into the ground. The pendulum will swing back as more moderate voters get tired of Reaganomics and regressive social policies. Add to that the wave of minority voters coming up in the next 10 to 15 years and things will get better. unfortunately we have to suffer through 10 more years of gerrymandered districts and dispropionate representation.

  2. Funny thing....rich people telling poor people how bad the other rich people are wanting to cut benefits/school etc and that they should vote for those rich people that just did it. Just saying..............

  3. Good try, Mr. Irwin, but I think we all know the primary motivation for pursuing legal action against the BMV is the HUGE FEES you and your firm expect to receive from the same people you claim to be helping ~ taxpayers! Almost all class action lawsuits end up with the victim receiving a pittance and the lawyers receiving a windfall.

  4. Fix the home life. We're not paying for your child to color, learn letters, numbers and possible self control. YOU raise your children...figure it out! We did. Then they'll do fine in elementary school. Weed out the idiots in public schools, send them well behaved kids (no one expects perfection) and watch what happens! Oh, and pray. A mom.

  5. To clarify, the system Cincinnati building is just a streetcar line which is the cheapest option for rail when you consider light rail (Denver, Portland, and Seattle.) The system (streetcar) that Cincy is building is for a downtown, not a city wide thing. With that said, I think the bus plan make sense and something I shouted to the rooftops about. Most cities with low density and low finances will opt for BRT as it makes more financial and logistical sense. If that route grows and finances are in place, then converting the line to a light rail system is easy as you already have the protected lanes in place. I do think however that Indy should build a streetcar system to connect different areas of downtown. This is the same thing that Tucson, Cincy, Kenosha WI, Portland, and Seattle have done. This allows for easy connections to downtown POI, and allows for more dense growth. Connecting the stadiums to the zoo, convention center, future transit center, and the mall would be one streetcar line that makes sense.

ADVERTISEMENT