WellPoint CFO says insurance ‘mega-mergers’ unlikely

WellPoint Inc.’s chief financial officer, Wayne DeVeydt, said health-insurance “mega-mergers” are unlikely
under the Obama administration and his company is more likely to buy Blue Cross-Blue Shield plans in “medium-sized”
transactions.

DeVeydt, speaking to investors in New York on Monday, also said WellPoint, the biggest U.S. insurer
by enrollment, will pay a dividend “at some point,” with a yield of at least 2 percent. The Indianapolis-based
company hasn’t decided on just how much to pay, or when, and is still waiting to see how the health-care debate in Washington
plays out, he said.

Obama’s efforts to expand insurance to more than 30 million uninsured Americans, paid
partly by new taxes on insurers, is unlikely to pass Congress in its current form, DeVeydt said. Democrats will probably push
through pieces of the legislation, he said. Among those are an expansion of Medicaid, the program for the poor, and reduced
rates for insurance companies covering the elderly through Medicare Advantage policies, he said.

“The more
likely outcome now is you start to see smaller pieces of it broken off and pushed through on unrelated bills,” DeVeydt
said. With a broad national bill stalled, “I do think you’ll see the fight go much more to the state level.”

The Obama administration on Monday asked WellPoint’s subsidiary to justify a proposed rate increase in California,
saying the insurer was planning to raise rates as much as 39 percent on some customers.

“These extraordinary
increases are up to 15 times faster than inflation and threaten to make health care unaffordable for hundreds of thousands
of Californians, many of whom are already struggling to make ends meet,” Health and Human Services Secretary Kathleen
Sebelius said in a letter to Anthem Blue Cross, the subsidiary.

The increase was “difficult to understand”
given WellPoint’s $2.7 billion profit in the fourth quarter of 2009, Sebelius said. The profit included $2.2 billion
from the insurer’s sale of its drug-benefits unit to Express Scripts Inc. of St. Louis, WellPoint said in its Jan. 27
earnings statement.

An Anthem spokeswoman, Peggy Hinz, said the company wouldn’t discuss the size of the
rate increase or the amount of people affected. In a telephone interview, she declined to comment on Sebelius’ letter,
saying Anthem was preparing a statement.

WellPoint fell 4 cents, to $61.65, Monday in New York Stock Exchange composite
trading. The shares have gained 35 percent in the past 12 months.

DeVeydt, at the UBS conference, said WellPoint
agreed on the health-care system needs to be fixed, calling affordability “a real problem for this country.”

Democrats’ current proposals would only make care more costly, raising taxes on insurance policies while doing
nothing to slow the rising price of medical care, he said.

The outcome of the health-care overhaul, as well as
financing rates and debates on corporate taxes will affect the company’s dividend determinations, the CFO said. WellPoint
will probably know enough to decide by year-end, he said.

Obama’s Federal Trade Commission is unlikely to
approve mergers among the biggest insurers, including UnitedHealth Group Inc. of Minnetonka, Minn.; Aetna Inc. of Hartford,
Conn.; and Philadelphia-based Cigna Corp., DeVeydt said in a question-and-answer session after his presentation at the UBS
AG health-care conference. The administration wrongly believes that mergers in the industry will lead to “higher prices
and price-fixing,” DeVeydt said.

Consolidation will be necessary in the coming years as the costs of care
rise and the U.S. population ages, he said. Larger insurers will have the scale to negotiate better rates with doctors and
hospitals and the resources to finance technology and wellness programs to keep patients healthier, he said.

WellPoint,
insurer of one out of every nine Americans, already owns state Blue Cross plans in 14 states. As the health- care debate stalls
in Washington, WellPoint expects more Blue Cross and Blue Shield companies to consider sales. State regulations mean those
plans, many of them not-for-profits, are much easier to sell to another Blue Cross like WellPoint, he said.

“The
pipeline is significant,” DeVeydt said. “There just aren’t any dealers or takers right now” as the
health-care debate leaves the value of health plans uncertain.

WellPoint’s board of directors has decided
to start offering the company’s dividend at some point, the CFO said. The insurer wants to offer “a meaningful
amount” that would likely be at least 2 percent of its stock price. Any less than that and the offering isn’t
worth the cost to the company in lost financial flexibility or the administrative expense, DeVeydt said.

“The
answer is ‘Yes we will’” offer a dividend, DeVeydt told a questioner. “What hasn’t been answered
is when.”

Please enable JavaScript to view this content.

Story Continues Below

Editor's note: You can comment on IBJ stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Please note our updated comment policy that will govern how comments are moderated.

{{ articles_remaining }}
Free {{ article_text }} Remaining
{{ articles_remaining }}
Free {{ article_text }} Remaining Article limit resets on
{{ count_down }}