Insurer WellPoint's 4Q profit drops 39 percent

January 25, 2012 - 9:25 AM

INDIANAPOLIS (AP) — WellPoint Inc.'s fourth-quarter earnings sank 39 percent as medical claims soared because of its Medicare Advantage business, but the health insurer raised its quarterly dividend and it forecast earnings growth in 2012.

The performance was a rare miss of Wall Street expectations. WellPoint's full-year earnings outlook also came in short of analysts' estimates. The Indianapolis company's stock sank more than 6 percent, or $4.40, to $65 in premarket trading Wednesday.

The largest health insurer based on enrollment said Wednesday that it earned $335.3 million, or 96 cents per share, in the three months that ended Dec. 31. That's down from $548.8 million, or $1.40 per share, in the final quarter of 2010. Adjusted net income, which excludes investment gains and losses, was 99 cents per share.

Operating revenue, which also excludes investment gains, climbed 5.5 percent to $15.18 billion.

Analysts surveyed by FactSet expected, on average, earnings of $1.12 per share on $15.46 billion in revenue.

WellPoint operates Blue Cross Blue Shield plans in 14 states, including California, New York and Ohio.

The insurer said medical claims, its largest expense, climbed nearly 10 percent in the quarter to $12.43 billion. In contrast, that expense fell 5 percent in the 2010 quarter. The change was driven largely by expenses tied to its Medicare Advantage coverage, WellPoint spokeswoman Kristin Binns said.

Medicare Advantage plans are privately run versions of the government's Medicare program. WellPoint has said some of its plans were hurt last year by adverse selection, which involves healthy members dropping coverage and leaving a greater concentration of people who generate more in claims than they contribute in premiums.

A plan in Northern California, in particular, attracted more customers with a higher risk profile than the insurer expected because a competitor left the market.

Binns also said the insurer recorded a benefit of $315 million in the 2010 quarter because claims left over from previous quarters came in lower than expected. It had no gain like that in the 2011 quarter.

Leerink Swann analyst Jason Gurda said in a research note the insurer's results were disappointing, but he doesn't see the performance "as a disaster," because the company has refined its Medicare Advantage business and pricing for 2012.

WellPoint's enrollment climbed about 3 percent to 34.3 million compared to the 2010 quarter.

Managed care companies have been buoyed the past few quarters by health care use that has grown at lower-than-expected rates. This trend, which may be driven by a lingering pullback on consumer spending from the recession, has helped companies consistently beat analyst expectations. Analysts have said they expect this trend to continue into 2012.

WellPoint competitor UnitedHealth Group Inc. said last week it expects utilization to increase steadily throughout the new year. UnitedHealth reported a 21 percent increase in fourth-quarter earnings, to $1.26 billion, or $1.17 per share.

WellPoint saw use pick up in the final quarter, but that was mainly due to its California Medicare Advantage business, according to Binns.

For the full year, WellPoint earned $2.65 billion, or $7.25 per share, on $60.71 billion in revenue.

The insurer expects to earn at least $7.60 per share in 2012. Analysts had expected $7.76.

WellPoint also said Wednesday its board approved an increase in its quarterly dividend from 25 cents per share to 28.7 cents that will be paid March 23 to shareholders of record on March 9.