`

WellPoint news could presage industry slump

March 11, 2008

WellPoint Inc.'s woes made for a gloomy day on Wall Street and could turn into year-long gloom for the whole industry.

That's what at least one Wall Street firm said after Indianapolis-based WellPoint sharply lowered its profit forecast late yesterday. Its share price fell 26 percent this morning, to $48.55.

Goldman Sachs and Co. slashed its outlook, not only for WellPoint, but also for all its managed-care insurance peers, according to MarketWatch.

"WellPoint's problems reflect company-specific underwriting error, but also reflect industry-wide pricing pressures that are now combined with upward pressure on underlying medical cost trends, substantially increasing the risk that the current cyclical slowdown in managed care becomes an outright downturn," a Goldman report said.

Such a shift would be dramatic. Managed care stocks have performed well in the last year. WellPoint's stock enjoyed an 11-percent increase in 2007, peaking at $90 per share in early January. Even the famous investor Warren Buffett has been buying up WellPoint shares.

But the scariest part of WellPoint's announcement is that its medical costs have run higher than expected during the first two months of this year.

As of January, WellPoint officials expected to spend 81.6 percent of revenue to pay medical claims. But yesterday, they hiked their expectations to as much as 83.1 percent.

Analysts and investors worry that other insurers will face the same difficulty.

WellPoint has more customers than any other health insurer with 35 million. Company officials said they expect to add 300,000 fewer members this year than they predicted in a January announcement.

Minnesota-based UnitedHealth Group, Connecticut-based Aetna Inc. and Philadelphia-based Cigna Corp. all saw their stocks take a beating today.

Aetna tried to stave off such losses last night by affirming its profit forecasts. It said it would earn 92 cents per share in the first quarter and $4 per share for the year.

WellPoint now expects 2008 profit of $5.76 to $6.01 per share, down from prior guidance of $6.41 per share. Analysts polled by Thomson Financial expect profit of $6.41 per share.

During the first quarter, WellPoint now expects $1.16 to $1.26 per share, down from a prior view of $1.44 per share. Analysts expect first-quarter profit of $1.43 per share.

"While we are disappointed with having to revise our 2008 outlook, we are still expecting growth this year, with record levels of membership, revenue and earnings per share," Angela F. Braly, president and chief executive, said in a statement.

WellPoint said enrollment in fully insured products was below expectations for the first two months, citing a shortfall in Medicare Advantage growth and declines in small-group and individual insurance membership.

The Associated Press contributed to this report.

Source: XMLFULL/XMLFull12349.xml
ADVERTISEMENT

Recent Articles by J.K. Wall

Comments powered by Disqus