WellPoint's Net Income Slips 1.3% on Investments; Enrollment

WellPoint Inc.'s first-quarter net income slipped 1.3% on big investment losses as the U.S. health insurer shed enrollment in fully insured commercial health plans as employers continue to lay off workers in the faltering economy.

Net income for the largest U.S. health insurer by membership fell to $580.4 million from $588.1 million in the prior-year first quarter. Results included $352.5 million in pretax net realized investment losses, which included other-than-temporary impairments of $169.7 million on equity securities and $135.3 million on fixed-maturity securities.

WellPoint (NYSE: WLP) is the licensee for Blue Cross or Blue Cross and Blue Shield in 14 states. The capital levels in its insurance subsidiaries exceeded state regulatory levels by about $5.5 billion and the Blue Cross and Blue Shield Association's requirements by about $2.3 billion, the Indianapolis-based company said.

Angela F. Braly, president and chief executive officer, said during the company's conference call that results "were solid in light of the current economy" and the "performance improvement initiatives" WellPoint put in place last year are yielding positive results. Actions to better understand claims and medical costs contributed to an improvement in operating results, despite the decline in membership, she said.

Total medical membership dropped by 814,000 people to 34.6 million. Enrollment in its fully insured health plans fell 6.5% to 15.9 million, where the decline was most significant in its local group business, WellPoint said.

The declines occurred mostly in the employer-based businesses, which reflects the economic downturn, Braly said. "We will remain disciplined in our pricing and currently have a number of strategies in place to enhance fully insured enrollment in a sustainable, long-term manner," she said. Many economists project that employment levels will stabilize, Braly said.

Total revenues declined 2.6% to $15.1 billion, reflecting the lower enrollment.

For employers that self-fund their employee benefit plans and for which WellPoint provides administrative service only in exchange for a fee, enrollment rose 1.6% to 18.6 million. The company added 400,000 members in its national business, Braly noted.

Enrollment in WellPoint's Medicare Part D prescription drug plans for seniors fell 7.1% to 1.7 million.

In January, the U.S. Centers for Medicare & Medicaid Services CMS barred WellPoint from enrolling new members in its Medicare Advantage and Part D plans, citing numerous consumer complaints that the health insurer allegedly denied legitimate prescription drug benefits (BestWire, Jan. 13, 2009).

Meanwhile, health plans participating in the Medicare Advantage program in 2010 will be asked for the first time to accept lower payments than the prior year, under rate and reimbursement guidelines CMS released earlier this month (BestWire, April 7, 2009).

Last year, enrollment declines in fully insured commercial health plans and investment losses linked to the global credit crisis dragged down profits for the biggest health insurers (BestWire, March 3, 2009). Also looming on industry chiefs' minds are how efforts at overhauling the health care system will play out under the new Democrat-led Congress and White House. Over the past year, the A.M. Best U.S. Health and HMO stock index is down about 41% (BestWire, April 21, 2009).

"Our leadership team is actively involved in this important dialogue," Braly said of health reform. "We are advocating for responsible and sustainable health care reform that is designed to improve the quality and safety of medical care while addressing cost and increasing access to care for all Americans."

Recently, WellPoint said it would sell its pharmacy benefits management units to Express Scripts Inc. for nearly $4.7 billion. Express Scripts (NASDAQ: ESRX) plans to buy NextRx, the WellPoint unit that provides pharmaceutical management services to about 25 million people and manages more than 265 million prescriptions a year (BestWire, April 14, 2009).

The deal will offer better negotiated pricing over time and will help members better understand generic drug options and availability of mail order, which can reduce their out-of-pocket costs, Braly said.

Meanwhile, UnitedHealth Group (NYSE: UNH) also reported that its first-quarter net income dipped 1% on lower investment income and enrollment declines in its health plans (BestWire, April 21, 2009).

WellPoint's subsidiaries currently have Best Financial Strength Ratings ranging from A to A- (Excellent)

On the afternoon of April 22, WellPoint's stock was trading at $41.79 a share, up 0.07% from the previous close.

(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)

Copyright (C) 2009 by A. M. Best Company, Inc.