WellPoint Sees a Jump in 4th quarter profits

WellPoint reported stronger than expected fourth quarter results. John Cannon, interim president and CEO said “The results reflect ìimproved operating performance, solid expense management, and improving execution in our core operations. We are encouraged by this strong performance, and believe it positions us well for a solid 2013.”

Wayne DeVeydt, executive vice president and chief financial officer said, “Our fourth quarter results reflected lower than anticipated commercial medical costs and stability in our membership base. Our results were supported by the strength of our operating cash flow and year-end balance sheet metrics. We are encouraged by the performance of our associates and the business in the last six months, but we also want to retain an appropriately prudent stance in our outlook, in light of what we expect to be a fluid and dynamic market over the next 18 to 24 months. This is reflected in our initial expectation for 2013 EPS of at least $7.60.”

WellPoint reports the following results:

• Membership: Medical enrollment totaled 36.1 million members on December 31, 2012, an increase of 5.5% from December 31, 2011. The acquisition of Amerigroup added nearly 2.7 million state-sponsored members during the fourth quarter of 2012. Membership also grew by 74,000 in the senior business, primarily due to expansion into new Medicare Advantage service areas during 2012. The increases in state sponsored and senior membership were offset by a 578,000 decline in local group members and a 321,000 decline in national businesses and members. These declines reflected the company’s small group product repositioning in New York and changes to its administrative fee structure for certain national accounts. Enrollment was also impacted by economy-related in-group membership attrition and competitive situations in certain local group markets.
• Operating Revenue: Operating revenue totaled about $15.3 billion in the fourth quarter of 2012, an increase of $95.8 million, or 0.6%, compared to the prior year quarter. This increase included revenue of about $316.8 million related to the Amerigroup and 1-800 CONTACTS acquisitions.
• Benefit Expense Ratio: The benefit expense ratio was 87.3% in the fourth quarter of 2012 compared to 87.6% in the fourth quarter of 2011. The decline reflects increases in senior and state sponsored businesses in the commercial market.
• Medical Cost Trend: For the full year 2012, the underlying local group medical cost trends was near the low end of  7%. Unit cost increases continue to be the primary driver of medical trend while utilization moderated over the second half of 2012. The company expects the underlying local group medical cost trends to increase during 2013 and be within the range of 7% for the full year.
• Commercial Business: Operating gain in the Commercial segment increased 22% in the fourth quarter of 2011 — driven by an improvement in the benefit expense ratio for local group business. This was offset partially by the reduction in fully insured Local Group membership and increased SG&A expense.
• Consumer Business: The company has experienced an operating loss of $173.3 million in the consumer segment during the fourth quarter of 2012, compared to an operating loss of $4.6 million in the fourth quarter of 2011. The majority of the decline in consumer segment results was driven by closing costs with the Amerigroup acquisition as well as other severance and impairment expense items. The company also saw a decline in the results of its senior and state sponsored programs and has taken steps to improve the future performance of these businesses.

WellPoint expects the following for the full year of 2013:

• Net income is expected to be at least $7.60 per share, including integration costs related to the Amerigroup acquisition. Year-end medical enrollment is expected to be in the range of 35.3 million to 35.5 million.
• Operating revenue is expected to be from $71.5 billion to $73.0 billion.
• The benefit expense ratio is expected to be 86%.
• The SG&A expense ratio is expected to be 13.5%.
• Operating cash flow is expected to be at least $2.6 billion.

For more information, visit www.wellpoint.com.

Last Updated 9/8/2017

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