WellPoint’s first-quarter net income fell 21 percent as the nation’s second-largest health insurer adjusted to coverage changes introduced by the health care overhaul.
But the Blue Cross Blue Shield insurer touted the underlying strength of its business and once again raised its 2014 forecast after reporting on Wednesday quarterly earnings that topped Wall Street expectations. Its stock climbed in premarket trading after it released results.
The federal overhaul expanded coverage to millions of people starting this year, but the law also enacted taxes and fees, as well as changes to how insurers write their coverage.
Those changes led to insurance coverage with richer benefits and higher costs at the start of the year, spokeswoman Kristin Binns said. Those higher costs came from items like the law’s requirement for complete coverage of preventive services and from plans with lower deductibles, which don’t encourage patients to hold off on using their insurance.
Deductibles are the amount a patient must pay out of pocket before most insurance coverage starts. With high deductible plans, insurers typically see a rise in claims or expenses at the end of the year as customers pay off their deductibles and then rush to use their coverage before that deductible resets in the new year.
The insurer’s general and administrative expenses climbed 28 percent to $2.49 billion in the quarter in part because of these factors, Binns said.
WellPoint has made a bigger bet than some of its competitors on the overhaul, which expands the state-federal Medicaid program and introduced state-based insurance exchanges on which people can buy coverage with help from income-based tax credits. The insurer is counting on its well-known Blue Cross-Blue Shield brand to help sell coverage on 14 exchanges.
It also expects significant growth from the Medicaid expansion. WellPoint’s 2012 acquisition of fellow insurer Amerigroup gave it a presence in several states where coverage is expanding. The insurer said Wednesday it added 121,000 Medicaid members in the first three months of the year.
Overall, WellPoint earned $701 million, or $2.40 per share, in the three months that ended March 31. That’s down from $885.2 million, or $2.89 per share, in last year’s quarter. Earnings excluding one-time items totaled $2.30 per share.
Operating revenue climbed slightly to $17.64 billion. That excludes investment gains or losses.
Analysts, who typically exclude one-time items from their estimates, expected earnings of $2.10 per share on $17.95 billion in revenue, according to FactSet.
Citi analyst Carl McDonald said in a research note that it wasn’t clear whether any of the factors that helped WellPoint top earnings forecasts will continue for the rest of the year.
WellPoint Inc. indicated otherwise by raising its 2014 adjusted earnings to greater than $8.40 per share after predicting earnings of more than $8.20 per share last month.
“We are off to a strong start, supporting an increase in our earnings guidance for the full year,” CEO Joseph Swedish said in a statement.
Analysts expect, on average, $8.41 per share.