WellPoint’s profit jumps 51%
An uproar over hefty rate hikes for Anthem Blue Cross customers in California is taking a bite out of the insurer’s revenue, but its parent company nonetheless reported soaring profit Wednesday.
WellPoint Inc. said that earnings jumped 51% during the first three months of the year compared with the same time last year, even as it lost money in California after state regulators forced it to delay premium increases of as much as 39% for thousands of customers who buy their own insurance.
The company’s profit also prompted immediate criticism by U.S. Sen. Dianne Feinstein, (D-Calif.), who called on it to scrap all together the proposed rate increases in California.
WellPoint Chief Executive Angela F. Braly told industry analysts Wednesday morning that WellPoint was “off to a good start in 2010,” but added that the California rate hike postponement — set to enter its third month — has taken a financial toll.
“Due to this delay, our individual business in California is performing below expectation this year and lost money in March,” Braly said, although she did not say how much. “The premiums we charge must be sufficient to cover the underlying cost of care.”
WellPoint’s proposed rate hikes in California have provoked criticism from consumers, regulators and elected leaders, including President Obama. The company’s rate hike proposals also have met resistance elsewhere, including Maine.
Analysts asked whether the California revolt over individual health insurance policies might spread.
“Might this leak into other areas such as small group” insurance, Justin Lake, an analyst with UBS in New York, asked Braly and other executives on Wednesday’s conference call.
Braly replied: “This is a very highly politicized environment in the short term, varying by states. We’re going to think about the long-term implications.”
WellPoint’s profit report provided new ammunition for California customers facing double-digit increases. They questioned why their premiums would rise as WellPoint reports rising income.
“Making customers happy does not seem to be their strategy,” said Josh Libresco, 55, a Marin County marketing executive who faces a 39% rate hike for his family of four.
In its first-quarter report, WellPoint said it earned $877 million, or $1.96 a share, , compared with profit of $580 million, or $1.16, a year earlier.
Excluding one-time costs and gains, the company’s earned $1.95 a share, surpassing analysts’ average estimate of $1.67.
Total revenue slipped slightly to $15.1 billion from $15.14 billion.
Shares of WellPoint rose $1.53 to $57.45.
Company executives attributed the earnings results to a modest enrollment increase and lower medical costs during the relatively mild flu season. The company’s investment gains and its repurchase of 25 million shares of its stock also played a role, analysts said.
WellPoint, which runs Blue Cross and Blue Shield plans in 14 states and UniCare plans in several others, said that overall membership grew by 165,000 in the first quarter, giving it a total of 33.8 million customers.
That was 2% lower than a year earlier, when the company had 34.6 million members. WellPoint executives said most of the decline was the result of withdrawing its UniCare business from markets in Texas and Illinois. The company projects year-end enrollment of 33.1 million.
The rise in earnings came as revenue from premiums dropped 2% in the quarter to $13.9 billion from $14.2 billion.
Still, the overall gain in profit triggered a swift reaction in Washington. Feinstein said that WellPoint should postpone its California rate hikes until Congress decides on a bill that would create a national rate review authority.
“WellPoint’s actions are a textbook example of the profits-above-all-else Wall Street mentality that has caused major hardship for millions of average Americans,” Feinstein said.
WellPoint did not immediately respond to the request.