WellPoint Posts a 46% First-Quarter Net Income Increase

Thousand Oaks-based WellPoint Health Networks Inc. reported yesterday that its net income grew 46% in the first quarter compared to a year ago, largely due to membership gains, acquisitions and medical and administrative costs that were lower than anticipated, the Los Angeles Times reports. The company earned $141.1 million, or 97 cents a share, in the first quarter, up from $95.5 million, a 74 cents a share, last year. Revenue rose 51% to $3.9 billion (Lee, Los Angeles Times, 4/25). After increasing enrollment in California and purchasing St. Louis-based Right-Choice Managed Care Inc., WellPoint had 13 million members at the end of the quarter, up from 10.1 million a year ago (Baltimore Sun, 4/25). In addition, the company's premium increases kept pace with rising medical costs. WellPoint's medical-loss ratio -- health care costs paid out divided by premiums collected -- remained around 81%, "one of the best ratios among the major managed care companies," according to the Los Angeles Times.

WellPoint's strong earnings report, which follows a 39% profit increase reported by UnitedHealth Group last week, is the latest example that "hefty premium increases" have allowed the major managed care companies to remain strong, the Times reports. With the exception of Aetna, most of the nation's large managed care companies are expected to post "robust earnings growth" in the first quarter. While medical costs overall have "skyrocket[ed]," health insurers have been able to pass most of the costs on to businesses and consumers. However, the strong profits being reported by the companies could push employers to take a stronger stand in negotiating premium increases, which have risen rapidly in the past few years. "Most employers we talk to are wrestling with the degree of radicalism in which they want to approach this year," Kirby Bosley, head of Mercer Human Resource Consulting's health care division, said. But according to Clifford Hewitt, a health analyst at brokerage firm Legg Mason, the managed care industry has matured to the point where it may not have to give in to employer pressure. "You've had a shakeout in the industry, the peripheral players are gone. There's pricing discipline. So managed care organizations are not as likely today to lower prices to win a piece of the business," he said (Los Angeles Times, 4/25).