WellPoint's 2Q profit rises 4 percent

[July 28, 2010]  NEW YORK (AP) -- Insurer WellPoint said Wednesday its second-quarter net income rose 4 percent due to favorable reserve development, even as commercial enrollment continued to tumble in a tough economy.

The Indianapolis insurer said it earned $722.4 million, or $1.71 per share, in the three months ended June 30. Excluding investment gains, earnings per share were $1.67. Per-share results are helped by fewer shares outstanding.

Operating revenue fell 7 percent to $14.22 billion.

Analysts polled by Thomson Reuters forecast a profit of $1.55 per share on revenue of $14.61 billion.

WellPoint is the largest commercial health insurer based on membership. It said its medical enrollment slipped 2 percent to 33.5 million during the quarter. Enrollment was down because of the loss of the company's UniCare individual and group businesses in Texas and Illinois, and because of the weak economy and high unemployment levels.

Major health insurers struggled last year with costs and enrollment losses tied to the recession, as employers cut jobs and reduced the number of people covered by their insurance. But companies have shown signs this year that trend may be slowing.

Last year, WellPoint said its second-quarter profit fell more than 7 percent, as enrollment dropped 3 percent or by 1.1 million people.

WellPoint competitor UnitedHealth Group Inc. said last week its 2010 second-quarter net income rose 31 percent from a year ago, as costs and enrollment came in better than expected. On Tuesday, Aetna Inc. said its net income rose 42 percent because it spent a smaller portion of its premium revenue on medical care.

WellPoint said it spent 82.9 percent of its premium revenue on providing medical care during the quarter. That's down from 83.9 percent in the second quarter of 2009. Its benefit expense, or the amount it spends on medical coverage, fell 7 percent to $10.99 billion.

Medical-loss ratios measure the percentage of premiums spent on medical costs. They give analysts a sense of whether insurance is priced correctly.

The health care reform law passed earlier this year will require insurers to spend at least 85 percent of their premium revenue on medical care for large group coverage and 80 percent for individual and small group coverage. But details of that law have yet to be ironed out, and its impact on insurer bottom lines is uncertain.

Revenue in WellPoint's commercial business fell 9 percent to $8.49 billion, but the division reported a larger profit.

The company raised its profit forecast to $6.30 per share from $6 per share. Analysts expect $6.26 per share on average.

WellPoint reported a 51 percent jump in its first-quarter profit, but the insurer also received unwanted attention that quarter for premium hikes for individual customers in California that has made investors nervous.

Last month, it said it would dial down plans to increase premiums by an average of about 25 percent. It now plans to raise premiums by an average of 14 percent, and it will cap the hikes at 20 percent. The insurer has said it expects to lose $100 million this year on that business.

[Associated Press]

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