IBJNews

WellPoint shares droop despite profitable quarter

Back to TopCommentsE-mailPrintBookmark and Share

WellPoint Inc.'s third-quarter earnings trumped Wall Street expectations, but the health insurer's stock tumbled Wednesday after President Barack Obama won re-election, a victory that could help cement the future of his health care overhaul.

The overhaul aims to cover millions of uninsured people starting mostly in 2014, which means more business for insurers. But it also imposes fees and restrictions on the sector that are expected to squeeze profits for companies like WellPoint, which focuses large portions of its business on covering individuals and employees of small businesses.

Shares of WellPoint dropped 5.5 percent, or $3.35, to close at $57.85 Wednesday.

Citi analyst Carl McDonald said in a research note the company's results would be viewed "quite favorably" without the election's impact.

"There's been an undercurrent of concern among many regarding the potential for bad news out of WellPoint's third quarter earnings, but the trepidation wasn't warranted," McDonald wrote, noting that the insurer easily beat expectations.

WellPoint earned $691.2 million, or $2.15 per share, in the three months that ended Sept. 30. That's up 1 percent from $683.2 million, or $1.90 per share, a year ago.

Excluding investment gains, adjusted earnings were $2.09 per share.

Analysts expected $1.83 per share, according to FactSet.

The insurer's revenue, also excluding investments, was $15.13 billion, which fell short of analyst expectations for $15.3 billion in revenue.

WellPoint said its enrollment slid more than 2 percent to about 33.5 million people compared to last year. Losses in individual and employer-sponsored health coverage more than offset gains the insurer made in its Medicaid and Medicare businesses.

The company operates Blue Cross Blue Shield plans in 14 states, including California, New York and Ohio.

WellPoint had not recorded a quarterly increase in earnings compared to the previous year since the first quarter of 2011, and the insurer's performance had frustrated several large shareholders. Chairwoman and CEO Angela Braly abruptly resigned with about a month left in the third quarter, and the company named John Cannon, its executive vice president and general counsel, to serve as interim CEO.

Wednesday morning's stock decline blunted the 5-percent growth shares had seen since Braly left.

While the overhaul is expected to give insurers millions of new customers, the industry will pay a hefty price for that additional business.

Insurers will start paying annual fees in 2014 that total $8 billion that year and rise after that. The law also restricts how much insurers can vary their pricing based on things like age and health, key tools they use to ensure that they have enough money to pay medical claims.

The overhaul also will require them to cover everyone who applies starting in 2014, even those already sick with expensive conditions such as diabetes. Additionally, the law stipulates that insurers spend certain percentages of the premiums they collect on care or pay rebates to customers.

Analysts have said that insurers like WellPoint will see their profit margins squeezed the most by these limitations and premium spending rules.

But Morningstar analyst Matt Coffina said Wednesday he thinks WellPoint is positioned well for the overhaul. He said the company has experience selling individual policies and a well-recognized brand that should help when coverage expands.

In July, WellPoint lowered its 2012 forecast to adjusted earnings ranging from $7.30 to $7.40 per share. It reaffirmed that forecast on Wednesday.

Analysts expect, on average, earnings of $7.38 per share.

ADVERTISEMENT

  • Agreed...
    For-profit health insurance only cost to healthcare as they function as unnecessary middleman. The federal government could do it much more cost effectively and we could utilize the private sector to process the claims. Hopefully, people wake-up one day and realize there IS a better way.
  • What is Wellpoint profiting on anyway?
    Wellpoint does not provide health care to anyone. What exactly are investors "investing" in? The virtual certainty that people need health care for preventive reasons, to cure an ailment, to avoid early death and to minimize human suffering? Why should anyone who does not offer health services profit from the provision of health care by others? The profit motive drives up everyone's costs, and hurts small businesses that want to offer health coverage to employees.

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. You are correct that Obamacare requires health insurance policies to include richer benefits and protects patients who get sick. That's what I was getting at when I wrote above, "That’s because Obamacare required insurers to take all customers, regardless of their health status, and also established a floor on how skimpy the benefits paid for by health plans could be." I think it's vital to know exactly how much the essential health benefits are costing over previous policies. Unless we know the cost of the law, we can't do a cost-benefit analysis. Taxes were raised in order to offset a 31% rise in health insurance premiums, an increase that paid for richer benefits. Are those richer benefits worth that much or not? That's the question we need to answer. This study at least gets us started on doing so.

  2. *5 employees per floor. Either way its ridiculous.

  3. Jim, thanks for always ready my stuff and providing thoughtful comments. I am sure that someone more familiar with research design and methods could take issue with Kowalski's study. I thought it was of considerable value, however, because so far we have been crediting Obamacare for all the gains in coverage and all price increases, neither of which is entirely fair. This is at least a rigorous attempt to sort things out. Maybe a quixotic attempt, but it's one of the first ones I've seen try to do it in a sophisticated way.

  4. In addition to rewriting history, the paper (or at least your summary of it) ignores that Obamacare policies now must provide "essential health benefits". Maybe Mr Wall has always been insured in a group plan but even group plans had holes you could drive a truck through, like the Colts defensive line last night. Individual plans were even worse. So, when you come up with a study that factors that in, let me know, otherwise the numbers are garbage.

  5. You guys are absolutely right: Cummins should build a massive 80-story high rise, and give each employee 5 floors. Or, I suppose they could always rent out the top floors if they wanted, since downtown office space is bursting at the seams (http://www.ibj.com/article?articleId=49481).

ADVERTISEMENT