WellPoint Lowers 2008 Profit Forecast Citing Rising Medical Costs, Low Enrollment

Main Category: Health Insurance / Medical Insurance
Article Date: 13 Mar 2008 - 9:00 PDT

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WellPoint on Monday reduced its 2008 profit outlook, citing higher-than-expected medical costs, lower-than-expected enrollment and worsening economic conditions, Reuters/Los Angeles Times reports (Reuters/Los Angeles Times, 3/11). The insurer lowered its 2008 earnings projection to $5.76 to $6.01 per share on operating revenue of $62 billion, down from $6.41 per share on operating revenue of $62.6 billion (Edwards/Brin, Wall Street Journal, 3/10). The revised outlook estimates profit growth of 4% to 8%. The company also cut first-quarter profit expectations from $1.44 per share to $1.16 to $1.26 per share. WellPoint estimates year-end membership of 35.3 million, about 300,000 fewer members than the insurer's January estimate (Reuters/Los Angeles Times, 3/11). WellPoint shares fell 18% in after hours trading. WellPoint also announced that it had set aside $175 million to boost reserves for unexpectedly high 2007 claims (Hartford Courant, 3/11).

JP Morgan analyst William Georges in a research note said that WellPoint's view of higher medical costs is "likely systematic," adding, "We expect other managed care plans to report similar issues." Goldman Sachs analyst Matthew Borsch in a research note said WellPoint's problems "reflect industrywide pricing pressures that are now combined with upward pressure on underlying medical cost trends, substantially increasing the risk that the current cyclical slowdown in managed care becomes an outright downturn" (Krauskopf, Reuters, 3/11).

Sheryl Skolnick, a health care analyst with CRT Capital, said other health insurers might face some of the same problems as WellPoint, such as enrollment and rising medical costs. Skolnick said insurance premiums "are higher than people feel they are able to afford" -- especially for individuals who purchase their own coverage (Freudenheim, New York Times, 3/11).

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