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February 10, 2010 Wednesday 8:21 PM EST
SECTION: NEWS & COMMENTARY; Healthcare
LENGTH: 775 words
HEADLINE: WellPoint faces firestorm over profits
BYLINE: Russ Britt, MarketWatch mailto:email@example.com.
Russ Britt is the Los Angeles bureau chief for MarketWatch.
LOS ANGELES (MarketWatch) — WellPoint Inc. faces a firestorm of controversy as the health insurer’s massive fourth-quarter profit gains are likely to become the center of attention as it seeks to raise premiums in California.
WellPoint (WLP) posted a 727.3% gain on its bottom line during the fourth quarter, as net profits jumped to $2.74 billion from $331.4 million in the year-ago period. Its margins catapulted to 18% from 2.2% in 2008’s fourth quarter.
While the bulk of that 2009 profit gain is a one-time windfall realized from the sale of a subsidiary, it may be difficult to get that point across. WellPoint is up against a rising tide of criticism for its plan to raise premiums at its Anthem Blue Cross of California division 30% to 39%.
A group known as Health Care for America Now, or HCAN, plans to raise the point on Thursday at a press conference in Washington, D.C., as part of a general discussion on health-insurer profits. It plans to release a report on how much the nation’s five biggest insurers made last year while cutting costs and members.
“HCAN’s new report will show that WellPoint led the five insurers in posting huge profits last year while millions of Americans lost their coverage,” said a press release issued by the group late Wednesday. The group declined further comment, but said U.S. Rep. Rosa DeLauro, D-Conn., will be on hand to discuss efforts to keep WellPoint from raising rates in her state.
The company’s plans to raise rates has prompted a Congressional investigation as well as scrutiny from the California Department of Insurance. Officials from all levels of government, ranging from California Insurance Commissioner Steve Poizner, on up to Health and Human Services Secretary Kathleen Sebelius and even President Barack Obama have commented on WellPoint’s rate hikes.
WellPoint officials didn’t return phone calls Wednesday. DeLauro representatives in snowed-in Washington could not be reached. Shares of WellPoint ended trading Wednesday down more than 2% at $60.01.
But Robert Zirkelbach, a spokesman for the trade group America’s Health Insurance Plans, defended WellPoint’s profits, saying the portion of premiums that went toward insurer costs has declined for the second straight year while medical spending went up.
“For every dollar spent on health care in America, less than one penny goes toward health-plan profits,” Zirkelbach said in a written response. “Health-plan profits are well below other industries within the health-care sector.”
About $2.2 billion of WellPoint’s fourth-quarter profits came via the sale of its NetRx subsdiary, the company said in its Jan. 27 earnings release. Excluding that gain, the company still posted a healthy profit climb of roughly 63%, even as revenue dipped by $300 million and membership fell by 1.4 million members. Insurers say that membership declines have been due to high unemployment.
The company also said the percentage of revenue it spends on providing medical care, or medical loss ratio, dropped to 82.6% from last year’s 83.6%.
And had the NetRx sale not taken place, net margins still would have risen to roughly 3.5% from the 2.2% posted in 2008.
Along with WellPoint, three other major insurers had a similar story during 2009.
The nation’s biggest insurer, UnitedHealth Group Inc. (UNH) , saw its fourth-quarter net profits climb 30% and margins go to 4.8% from last year’s 3.9%. UnitedHealth lost 130,000 members, but the medical loss ratio rose to 82.3% from 82%.
Cigna Corp. (CI) swung to a gain of $330 million from a loss of $210 million in the fourth quarter of 2008. That’s a 257% shift.
Its margin for that period was 8.3%, far above the industry average of roughly 4%. Membership dropped by roughly 639,000 members, the company’s most recent earnings report says.
And Humana Inc.’s (HUM) fourth-quarter profits jumped 44%, to $250.7 million from last year’s $174.1 million, a gain of 44%. Margins climbed to 3.4% from 2.4%. While commercial membership fell 6%, Medicare Advantage membership grew 5%, Humana’s Feb. 1 earnings release says.
Humana’s medical-loss ratio fell to 81.8% from 83.3%, however.
A fifth insurer in the top five health carriers, Aetna Inc. (AET) , was the only one out of step with the rest. Aetna posted a 14.8% drop in fourth-quarter net income, going to $165.9 million from last year’s $194.7 million.
Margins dropped to 1.9% from 2.4%, while its membership rose to 18.9 million from 17.7 million, the company said in its Feb. 5 report. Its medical-loss ratio climbed to 85.4% from 81.8%.
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