Jan. 28 (Bloomberg) -- The recession may restrain growth in medical expenses this year as fewer people visit doctors, buy drugs or have surgery, helping health insurers such as WellPoint Inc. safeguard profits, analysts said.

WellPoint, which covers one in nine Americans, rose the most in four weeks after reporting that medical expenses climbed less than 8 percent in the fourth quarter. The increase was at the low end of a forecast given in October, and the report sparked a rally for managed-care companies.

During an economic slump, people who are worried about costs hesitate to tend to their health needs because of out-of-pocket expenses. The U.S. entered a recession in December 2007, and the economy suffered the biggest job losses last year since the end of World War II.

“Many analysts, me included, think that the recession will lead to lower health-care utilization, which could benefit managed-care companies or at least help stabilize their margins,” said Matt Perry, an analyst with Wachovia Securities Inc., in a note to clients today.

President Barack Obama’s newest plan to tackle the credit crisis, a move that could improve investment returns for the insurers, also boosted shares. WellPoint had $543.2 million in pretax investment losses in the fourth quarter and $1.1 billion for the year. Cigna Corp. had $76 million in investment losses in the third quarter after taxes, and it forecast more for the fourth quarter.

Shares Jump

WellPoint rose $1.88, or 4.4 percent, to $44.50, at 4:01 p.m. in New York Stock Exchange composite trading. The company dropped 41 percent in the last 12 months.

Cigna, of Philadelphia, gained $1.74, or 11 percent, to $18.29, the most since Dec. 5.

Hartford, Connecticut-based Aetna Inc. rose 6.1 percent. UnitedHealth Group Inc., the largest insurer by revenue, gained 3.1 percent, and Louisville, Kentucky-based Humana Inc. advanced 6.3 percent.

WellPoint rose even though it reported a 61 percent drop in net earnings. Besides investment losses, WellPoint had 288,000 fewer customers, mostly because of job cuts by its clients. The easing in costs outweighed the loss of subscribers.

The insurers “have very thin margins, so margin expansion is much more important to earnings per share than changes in enrollment,” said Ana Gupte, an analyst with Sanford C. Bernstein & Co., in a telephone interview today. “Everyone is expecting the recession will moderate” policyholders’ use of benefits this year, she said.

Inflation Forecast

WellPoint forecast in October that medical-cost inflation, which affects the setting of premium rates, would range from 7.5 to 8.5 percent and that it could speed up in 2009. The company said it was raising 2009 prices to stay ahead of that trend.

“We’re not ready to declare the trend has slowed down, and we’ve maintained our higher pricing levels,” said Wayne DeVeydt, WellPoint’s chief financial officer, in a conference call today.

The moderation of cost growth also was reported by members of the Blue Cross Blue Shield Association, a Chicago-based trade group for WellPoint and dozens of other insurers covering 100 million Americans, said Scott Serota, the group’s chief executive officer, in a telephone interview today.

“We’re still diagnosing” whether the slowdown comes from lower prices or fewer patients seeing their doctors, Serota said.

Stimulus Boost

Insurers also stand to gain from a proposed $816 billion economic stimulus being voted on in the House today. The plan, crafted by Democratic leaders and President Barack Obama, would pump $87 billion into federal-state Medicaid programs for the poor and direct at least $29 billion to people paying to continue workplace health plans after they’ve lost their jobs.

WellPoint’s Chief Executive Officer, Angela F. Braly, said the support for the poor and unemployed may boost business for health insurers.

“It would have a positive impact on membership” and draw in a customer base that includes healthier people rather than just the sickest, Braly said at an analyst conference today.

On Nov. 21, Cigna lowered its profit forecast for 2008 because of investment losses it said would be about $165 million after taxes. The company is more reliant than most insurers on the performance of its investments.

The Obama administration cheered investors today with its plans for a so-called bad bank that would be set up to buy toxic assets that are damaging banks’ balance sheets, people familiar with the matter said. U.S. stocks gained and extended a global rally on optimism the plan would bolster the economy.

‘Broader Rally’

“It’s in sympathy with the broader rally in financials,” said Aaron Vaughn, an analyst at Edward Jones in St. Louis. “Health insurers are riding the coattails for that.”

The cost of living fell in the U.S. in December as the recession deepened, capping the smallest annual gain in a half century, according to Labor Department data released this month. Consumers’ medical-care prices rose 2.6 percent last year, compared with a 5.2 percent increase in 2007.

To contact the reporter on this story: Avram Goldstein in Washington at agoldstein1@bloomberg.net.

Last Updated: January 28, 2009 16:32 EST