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Joseph Swedish, Wellpoint CEO
Swedish

WellPoint bullish on exchanges even as profits drop


By Paul Demko
Posted: April 30, 2014 - 11:15 am ET
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WellPoint signed up more than 600,000 individuals for coverage through the state and federal exchanges during the recently concluded open enrollment period, and executives there feel confident that the insurer has made accurate assumptions about demographics and costs for those new customers.

WellPoint officials, during a call on Wednesday to discuss first-quarter financial results, repeatedly said they believe they had hit the “sweet spot” in pricing products for the exchanges. They also predicted that profit margins will be in the 3% to 5% range for exchange products.

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“The risk pool and the product selection seem to be coming in the manner we had hoped it would,” said Joseph Swedish, WellPoint's CEO. “It's very encouraging right now.”

WellPoint officials estimated that 90% of exchange enrollees were following through on making their first premium payments, which is necessary to actually obtain coverage. They also indicated that the age of exchange customers declined throughout the open enrollment period. But officials cautioned that many enrollments came in during late March and early April and that therefore any analysis of demographics is preliminary.

Despite the bullish report on exchange enrollments, WellPoint's financial results for the first quarter were sluggish. The Indianapolis-based insurer reported profits of $701 million in the first three months of 2014, down 21% from $885.2 million during the same period the prior year. Earnings per share were $2.40 for the first quarter of this year, down from $2.89 for the first three months of 2013.

But those figures actually exceeded analysts' predictions and WellPoint boosted its 2014 earnings-per-share projection to at least $8.40, an increase of 20 cents.

WellPoint officials indicated that they are closely monitoring the financial impact of the introduction of the hepatitis C drug Sovaldi, which was approved by the FDA in December and costs upwards of $80,000 for a full course of treatment. The company reported spending nearly $50 million on hepatitis C coverage during the first quarter of 2014. In addition, it has added $100 million to its projected hepatitis C expenditures for the remainder of the year.

“It's the biggest watch items for the industry,” Swedish said.

WellPoint's revenues for the first quarter were $17.6 billion, an increase of $210 million over the prior year. But the company's profit margin dropped from 5% to 4%.

WellPoint's medical-loss ratio in the first quarter of 2014, which reflects the amount of money it spent on medical claims, was 82.7%. That was down 1 percentage point from 2013, which the company attributed to better margins in its Medicaid program.

WellPoint added 1.3 million members during the first three months of the year, a 3.6% increase since the end of 2013. The bulk of that increase, 1.2 million, came from the company's commercial business. WellPoint added 121,000 Medicaid enrollees during the quarter, but saw its Medicare rolls decrease by 62,000.

Wall Street reacted positively to the report, with WellPoint's stock up more than 5% in early trading Wednesday.

Follow Paul Demko on Twitter: @MHpdemko


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