WellPoint profit up; forecast is lowered

WellPoint Inc. said Wednesday that quarterly profit rose 27% as the health insurer better controlled overhead, but it cut its full-year enrollment forecast and reported medical cost trends that disappointed some analysts.

Shares of Indianapolis-based WellPoint, the largest U.S. health insurer by enrollment and parent of Blue Cross of California, fell 2.7%, with its results dragging down other insurers, even though its third-quarter profit was slightly above expectations.

Net income rose to $811 million, or $1.29 a share, compared with $641 million, or $1.02, a year earlier.

Excluding a per-share tax benefit of 4 cents and net realized investment gains of 1 cent, earnings were $1.24 a share. That was a penny ahead of the $1.23 expected by analysts, according to Reuters Estimates.

The company’s medical enrollment rose by 5.2 million members to 34.2 million from a year earlier, including about 4.8 million members added through its $6.5-billion purchase of rival WellChoice Inc. in December.

However, Bank of America analyst Joseph France said in a research note that WellPoint’s medical enrollment grew by only 27,000 members from the second quarter -- “really disappointing for a company that enrolls business year-round.”

WellPoint projected medical enrollment of about 34.3 million members at year-end, down from the 34.5 million it had forecast in July.

The company’s sales, general and administrative expense ratio was 15.5% in the quarter, down from 16.8% a year earlier. WellPoint said the improvement stemmed from controlling spending and various efficiencies, including those gained by integrating acquisitions.

WellPoint expects to lower that expense ratio by as much as 2 percentage points over the next three to five years, Chief Financial Officer David Colby told analysts on a conference call.

The company’s benefit expense ratio, a key barometer that measures medical costs as a percentage of premium dollars, worsened by a tenth of a percentage point to 81.3% from the second quarter and by 1.8 percentage points from a year earlier.

WellPoint said the worsening of the ratio, which came in below several analysts’ expectations, resulted mainly from adding the New York state prescription drug contract, which has a higher-than-average benefit expense ratio, and increased medical expenses for a federal employee contract.

WellPoint shares fell $2.09 on Wednesday to $76.53.

The shares have fallen more than 4% this year, a smaller drop than those of rivals UnitedHealth Group Inc. and Aetna Inc., which reports earnings today.

Shares of UnitedHealth fell $1.21 to $48.63, while Aetna declined $1.02 to $38.53.