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WellPoint Profit, Forecast Increase as Costs Decline

Updated on

Nov. 3 (Bloomberg) -- WellPoint Inc., the biggest U.S. health insurer by enrollment, raised its earnings forecast as lower medical costs boosted third-quarter profit 1.2 percent.

Net income rose to $739.1 million, or $1.84 a share, from $730.2 million, or $1.53, a year earlier, Indianapolis-based WellPoint said in a statement today. Excluding investment gains, earnings of $1.74 a share beat the $1.59 average estimate of 18 analysts surveyed by Bloomberg.

WellPoint rivals UnitedHealth Group Inc., Humana Inc., Aetna Inc. and Cigna Corp. beat earnings estimates in the past month, as a jobless rate above 9 percent kept Americans from spending on medical care. Profits may be unsustainable next year, as the Obama administration introduces rules to make plans spend at least 80 percent of premiums they collect on medical care, said Carl McDonald, a Citigroup Inc. analyst in New York.

Gains by the Republican Party in yesterday’s elections may not slow Obama’s efforts because “for the next couple of years Republicans can call a lot of hearings, and play around with the budget, but there’s not much they can do that will have a real impact on managed-care earnings in 2011 or 2012,” McDonald said in a note to clients today.

Sales, Forecast

WellPoint said sales fell to $14.3 billion from $15.2 billion a year earlier. The company said full-year net income will be at least $6.60 a share, higher than its prior forecast of at least $6.30. That followed increased forecasts in the past month by UnitedHealth, based in Minnetonka, Minnesota; Cigna, based in Philadelphia; and Humana, of Louisville, Kentucky.

Aetna, based in Hartford, Connecticut, said today that third-quarter net income jumped 52 percent to $497.6 million, or $1.19 a share, from $326.2 million, or 73 cents, a year earlier. Profit excluding some items was $1 a share, topping analyst estimates of 67 cents. Aetna, the third-biggest U.S. insurer, forecast net income of $3.60 a share for 2010, more than a previous outlook of as much as $3.15.

WellPoint gained 30 cents to $56.05 at 4 p.m. in New York Stock Exchange composite trading, adding to a 1.9 percent increase yesterday. Aetna rose 87 cents, or 2.9 percent, to $30.84, after rising less than a percent yesterday.

Both companies have fallen 13 percent since March 30, when President Barack Obama signed Democrats’ health-care overhaul into law.

Investment Gains

WellPoint and Aetna both said they benefitted from investment gains and claims that came in lower than expected earlier in the year, offsetting drops in medical enrollment.

Membership in WellPoint’s health plans fell 1.1 percent to 33.5 million, the insurer said in its statement. The company spent 83.8 percent of customer premiums on patient care, up from 81.1 percent, after scaling back a proposed rate increase in California, WellPoint said.

Enrollment will increase “slightly” next year, WellPoint Chief Executive Officer Angela Braly said on a conference call today. She said the company expected the trimmed California rates will lead to a $150 million loss this year in the individual market in the state.

The Republican gains yesterday probably won’t derail the medical-spending rules or other regulations growing out of Democrats’ health-care overhaul, since they’ll be written by Obama’s Department of Health and Human Services, said McDonald, the Citigroup analyst.

Republican Possibilities

The Republicans may move to lower taxes on insurers included in the law, after winning control of the U.S. House of Representatives, said Virginie Maisonneuve, head of global equities at Schroder Investment Management, in an interview with Francine Lacqua on Bloomberg Television’s “On The Move.”

Political gridlock in Washington “will be beneficial” for WellPoint, said Masionneuve, whose firm managed more than 430,000 shares in the insurer as of June 30. “They’ll continue to be seen in a better light by investors.”

Aetna expects its health-plan membership to slip by as much as 600,000 in the first quarter of next year, hurt by job and benefit cuts among customers as well as “competitive pricing” by rival insurers, Chief Financial Officer Joseph Zubretsky said on a conference call with analysts.

Aetna raised rates this year after finding 2009’s prices didn’t keep up with rising medical costs. The company is in the midst of a two-year effort to adjust pricing, he said.

The company also expects federal regulators to maintain a freeze on Aetna enrolling new customers in government-backed Medicare plans for the elderly until after the program’s enrollment period ends Nov. 15, said Mark Bertolini, the company’s president and incoming CEO. The suspension, imposed after Aetna violated rules for Medicare prescription-drug plans, may reduce earnings by 10 cents a share next year, he said.

To contact the reporter on this story: Alex Nussbaum in New York

To contact the editor responsible for this story: Reg Gale at

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