WellPoint Inc. (WLP), the second-biggest U.S. medical insurer, has added 500,000 members since Obamacare enrollment began and said the system’s early stumbles haven’t dimmed profit estimates, boosting the company’s shares.
While the new members tend to be older and sicker than current enrollees, WellPoint priced its plans accordingly and isn’t backing off projected profit margins, Chief Executive Officer Joseph Swedish told analysts today on a conference call. The prognosis helped WellPoint shares overcome a 68 percent decline in fourth-quarter net income.
Three million Americans had signed up as of last week for subsidized insurance under the Patient Protection and Affordable Care Act, known as Obamacare, overcoming technical disruptions and delays that hamstrung enrollment in October and November. Only about a quarter were younger than 35, raising concern that medical costs for the new coverage would be unsustainable.
While it’s still early, enrollment so far is “very consistent with our expectations,” Swedish said on the call. “We do feel good about what we’ve seen thus far in the exchanges.”
The Indianapolis-based insurer, which runs Blue Cross plans in 14 states, reiterated a profit forecast of more than $8 a share this year. WellPoint rose 1.3 percent to $85.37 at the close in in New York, and has gained 29 percent in the past 12 months.
WellPoint’s comments were the most detailed yet from an insurer about the people signing up through Obamacare’s online exchanges. Moody’s Inc. downgraded the insurance sector last week, from “stable” to “negative.” The credit-rating company cited “unstable and evolving” regulations from the law and the danger it would attract a sicker, older clientele.
WellPoint said enrollment was ahead of the company’s projections, despite last year’s technical problems. “The majority” of applicants have paid their first month’s premium, taking the final step to activating coverage, said Chief Financial Officer Wayne DeVeydt.
While it’s unclear how many of new members were previously insured, 80 percent were first-time WellPoint customers, Swedish said. Two-thirds used federal subsidies provided by the law.
“With enrollment open through March 31, we suspect real claims visibility is a long way off,” Jennifer Lynch, a BMO Capital Markets analyst in New York, said today in a note to clients. “However, the company commentary around exchange development was more encouraging than we expected.”
The news wasn’t all good. WellPoint said last-minute rule changes by the Obama administration are likely to reduce profit by $100 million this year. The changes allowed people to keep existing policies that otherwise would have been canceled by the law. That eased political criticism of Obamacare while increasing the chance that those who buy the new exchange plans will be sicker and generate higher medical costs.
“The changes that are facing our industry are admittedly very substantial and it still remains very early in the year,” Swedish said.
Analysts predict WellPoint will earn $2.47 billion in net income this year, based on the average of nine estimates compiled by Bloomberg.
The company also saw “higher utilization” in advance of Jan. 1, when the law’s new insurance plans took effect. Higher medical costs, along with a $160.7 million loss on the sale of two retail eye-wear businesses, helped send earnings down in the quarter, WellPoint said in a statement. Earnings excluding one-time items still met the average analyst estimate.
Insurer losses under the Affordable Care Act would be reduced in the first three years by provisions that kick in if the customer base turns out to be sicker than expected. The programs, known as reinsurance, risk adjustment and risk corridors, are funded by industry and taxpayer funds and have been criticized by Republicans as a “bail-out” of insurers.
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