BUSINESS

WellPoint's 1st quarter profit drops nearly 8 per cent; health insurer raises 2012 forecast

04/25/2012 07:46 EDT | Updated 06/25/2012 05:12 EDT
INDIANAPOLIS - WellPoint Inc. said Wednesday that its first-quarter profit fell nearly 8 per cent as enrolment slipped and expenses rose, but the health insurer raised its earnings forecast for 2012.

The Indianapolis company reported net income of $856.5 million, or $2.53 per share, for the three months ended March 31, down from $926.6 million, or $2.44 per share, a year earlier.

Excluding investment gains, WellPoint earned $2.34 per share in this year's first quarter.

Operating revenue climbed 3.4 per cent to $15.15 billion from $14.65 billion a year ago.

Analysts surveyed by FactSet expected, on average, earnings of $2.27 per share on $15.41 billion in revenue.

WellPoint is the second-largest health insurer after UnitedHealth Group Inc. It runs Blue Cross Blue Shield plans in 14 states, including California, New York and Ohio.

Total medical membership fell nearly 2 per cent to 33.7 million people compared to the end of last year, as the insurer lost enrolment in plans that provide health insurance to employees of small businesses and large, national accounts.

But WellPoint also gained 165,000 people in its Medicare Advantage business as it integrated CareMore Health Group, a Medicare Advantage plan provider acquired last year.

Medicare Advantage plans are privately run versions of the government's Medicare program. Subsidized by the government, the plans offer basic Medicare coverage topped with extras like vision or dental coverage or premiums lower than standard Medicare rates. WellPoint has said growth in its Medicare Advantage business plus a push to become more efficient will help it this year.

WellPoint also saw its benefit expense, or what it pays in medical claims, climbed 4.8 per cent to $11.77 billion in the quarter. The insurer said increases in the price for care continue to be the biggest force behind medical cost trends.

UnitedHealth also said last week that price increases were the biggest factor behind its rise in medical costs.

WellPoint now expects 2012 adjusted earnings of at least $7.65 per share, up from a previous forecast for at least $7.60 per share. But that is still below analysts' estimates for earnings of $7.72 per share.

WellPoint's stock sank in January after the insurer reported a fourth-quarter performance that missed analyst expectations, as net income dropped 39 per cent. That was mostly due to a $50-million hit from the company's Medicare Advantage business.

In this year's first quarter, the insurer did not beat expectations or raise its earnings forecast by huge margins, Citi analyst Carl McDonald said in a research note. But he added that his "sense heading into the quarter was that WellPoint just needed to not miss (expectations) in order to get a positive reaction."

Wellpoint shares rose 29 cents to $71.05 in premarket trading on Wednesday.