WellPoint 2Q profit, enrollment, stock tumble

By TOM MURPHY, AP Business Writer
Associated Press
July 29, 2009

INDIANAPOLIS (AP) -- Shares of WellPoint Inc. tumbled Wednesday after the health insurer reported a second-quarter profit drop and enrollment that slid further than analysts expected.

Total medical enrollment fell by 1.1 million people, or 3 percent, to 34.2 million compared to the same quarter last year. The company attributed most of that loss to rising unemployment.

WellPoint, the nation's largest health insurer based on enrollment, said it expects year-end medical enrollment to fall to about 33.6 million members, a 4 percent drop.

Nonetheless, the company reaffirmed its full-year guidance.

"Given all the circumstances, most notably the unemployment rate, we really believe now is not the time to change our guidance," CEO Angela Braly said during a conference call with analysts.

The Indianapolis company, which operates Blue Cross Blue Shield plans in 14 states, earned $693.5 million, or $1.43 per share, down 7.6 percent from $750.5 million, or $1.44 per share, a year ago. Revenue fell nearly 2 percent to $15.41 billion from $15.67 billion a year ago.

WellPoint said its adjusted earnings were $1.50 per share, excluding 7 cents per share in investment losses.

Analysts expected, on average, earnings of $1.43 per share on $15.4 billion in revenue, according to Thomson Reuters. Analysts typically exclude one-time items from earnings estimates.

Shares fell $3.10, or 5.7 percent, to close at $51.28 Wednesday.

Fully insured enrollment fell 6 percent to 15.7 million compared to last year. Fully insured plans are more lucrative for insurers than self-funded coverage that they administer.

WellPoint was hit particularly hard in its local group business, which consists largely of small businesses that are fully insured. Enrollment there fell by 734,000 people.

Wells Fargo analyst Matt Perry said in a research note the enrollment declines were slightly larger than expected.

"While the quarter was strong, the underlying results look mixed," he wrote. "The pressure in commercial fully insured margins is more severe than we expected, even after assuming some seasonality in results."

WellPoint's focus on individual and small group insurance markets leaves it exposed to a bad economy, Oppenheimer analyst Carl McDonald said in a research note. He said employers may lay off younger, healthier workers first and retain older workers who generate more claims.

The insurer said it saw a slight increase in utilization during the quarter, with patients either using more health care or more expensive care.

WellPoint also saw a bigger jump than it expected in people continuing their coverage under the federal law known as COBRA, which helps the unemployed keep temporary health benefits.

The federal government started a subsidy earlier this year to help pay for COBRA coverage, and WellPoint said fully insured people with COBRA coverage rose from 1.6 percent to 2.2 percent largely due to that.

COBRA coverage hurts insurers because they generally spend more on claims than they receive in premiums.

Chief Financial Officer Wayne DeVeydt said the COBRA coverage increases - which will be felt more acutely later in the year - plus Medicare Advantage reimbursement cuts and rising unemployment will make it tough for WellPoint to generate operating earnings growth next year.

That refers to earnings growth without share repurchases or investment gains or losses.

WellPoint reaffirmed its adjusted profit outlook for 2009. The insurer expects a full-year profit of $5.06 to $5.12 per share. That includes net investment losses of 54 cents per share.

WellPoint competitor UnitedHealth Group Inc. said last week its medical enrollment fell 2 percent in the second-quarter, and its commercial business dropped 6 percent.

On Monday, Hartford, Conn.-based Aetna Inc. reported a 9 percent gain in medical enrollment. But its quarterly profit sank 28 percent as it saw higher-than-expected medical costs.

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