Obamacare, long perceived as a huge threat to WellPoint Inc., is now being embraced inside the health insurer as a huge growth opportunity.
WellPoint CEO Joe Swedish predicted Wednesday that the Indianapolis-based company’s operating revenue will soar nearly 27 percent over the next three years, to a whopping $90 billion, up from about $71 billion this year.
“This potential for top-line growth far outpaces anything we have seen in recent years,” Swedish told Wall Street analysts during a conference call Wednesday morning after the company announced better-than-expected quarterly results.
He added that he expected the revenue growth to also come with compounded growth in annual profit of 4 percent to6 percent per year—even before any acquisitions.
Previously, there were concerns both inside and outside WellPoint because a huge portion of the company's profit comes from its plethora of small employer customers. With Obamacare creating new online exchanges later this year for those small employers, it looked like WellPoint would struggle to compete with more health insurers and in unfamiliar markets, just to hold its revenue and profit steady.
But now, most health insurers are just focusing on the local markets where they are already strong, WellPoint officials said—rather than trying to steal business from their peers. And WellPoint thinks its well-recognized brand and established relationships in local markets will win the day in the exchanges.
“As the exchanges are evolving, we are realizing more and more each day that density matters and the relationships with the local [health care] providers matter,” said Wayne DeVeydt, WellPoint’s chief financial officer. “We are probably better positioned than anybody.”
In addition, WellPoint expects growth to come as half of the 14 states in which WellPoint operates its Blue Cross and Blue Shield plans expand their Medicaid programs. WellPoint’s 2012 acquisition of Amerigroup Corp. has been “transformative,” DeVeydt said, helping WellPoint move from an employer-focused company to one with a competitive business for managing government-funded health plans.
Also on the government front, many states have moved even faster than expected to hire private companies like WellPoint to manage their growing numbers of low-income seniors who qualify for both the Medicaid and Medicare programs.
DeVeydt acknowledged that WellPoint’s profit margins would likely shrink under Obamacare, since government plans like Medicaid and Medicare don’t pay as handsomely as employer-sponsored insurance plans, which had been WellPoint’s bread-and-butter products. Also, the highly regulated exchanges and new profit caps put in place by Obamacare already have and will continue to pinch WellPoint’s profit per customer.
“We expect a measure of margin compression,” DeVeydt said, “but we expect volume to offset that.”
Most of Obamacare’s changes will take effect on Jan. 1. So far this year, WellPoint’s profit has surged as patients have continued to seek lower levels of care than expected.
Excluding investment gains, WellPoint earned $2.60 per share in the second quarter, a 27.5-percent increase over the same quarter a year ago.
Analysts were expecting earnings of $2.11 per share, according to a survey by Thomson Financial.
WellPoint raised its full-year profit forecast by 20 cents per share, excluding the impact of investments, to $8 per share.
Overall profit for the quarter rose 24 percent from a year ago, to $800.1 million, as WellPoint’s customers continued to file modest amounts of medical claims. WellPoint spent 83.9 percent of its premium revenue on claims, a tick higher than in the first quarter but well below its predicted level of 85.5 percent for the year.
WellPoint’s revenue for the quarter rose 16 percent, to $17.8 billion. Those numbers were boosted by WellPoint’s acquisition of Virginia-based Amerigroup in December.
WellPoint provided health benefits for 35.7 million Americans at the end of June, more than any other company in the United States.
WellPoint shares were up 3 cents Wednesday, to $87.54 per share.