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What to expect from Obamacare bellwether WellPoint

WellPoint may be one of investors' best bellwethers when it comes to Obamacare. As the nation's largest provider of Blue Cross Blue Shield plans, WellPoint is offering exchange health coverage in 14 states.

One big question investors will look to answer is how much of a hit did WellPoint take during the fourth quarter due to the troubled rollout of the Affordable Care Act.

"In our view, the market doesn't fully comprehend just how much pressure the plans participating on exchanges are under right now," wrote Citi Research analyst Carl McDonald in a note to clients.


Kevin Elliott | Bloomberg | Getty Images

The technical issues associated with the launch of HealthCare.gov not only hindered enrollment, according to McDonald, it also forced insurers to spend more than expected to try to help answer customers' questions about the exchange plans.

"Many have added hundreds of new customer service representatives (WellPoint said they've hired 1,000) and beefed up customer service hours. That will cost money that the plans weren't expecting to spend," McDonald wrote.

(Read more: Tired of Obamacare? More of the same in 2014)

WellPoint CEO Joseph Swedish expressed cautious optimism about the ACA after the Obama administration reported a year-end surge in enrollment.

"We expect a similar bump in March in front of the second primary enrollment deadline," he said during an investor presentation at the JPMorgan health-care conference earlier this month.

WellPoint's Blue Cross plans have retained their dominance in the individual market in the two largest states reporting insurer enrollment data.

In California, Anthem Blue Cross garnered 31 percent of total exchange plan enrollment as of Dec. 31. In New York, Empire Blue Cross Blue Shield attracted 18 percent of total enrollment as of Dec. 24. It's not clear how many of those enrollees were previously uninsured.

(Read more: Cubist Pharma waging a war against superbugs)

"I'm not reading too much into the initial enrollment data, because it's unclear what that really represents at this point," said Chris Rigg, health-care services analyst at Susquehanna Investment Group.

WellPoint is expected to post fourth-quarter earnings of 87 cents per share on revenue of $17.8 billion, according to FactSet analyst estimates. For 2014, analysts estimate the insurer will earn $8.35 per share on $73.41 billion in revenue.

"Their initial approach to earnings in 2014 will have a conservative bias," Rigg said.

Government-funded health-care plans account for 45 percent of WellPoint's revenue, between Medicaid, Medicare Advantage and now the individual exchange market.

Beyond the uncertainty over Obamacare enrollment, WellPoint will also likely face headwinds when it comes to profitability in its Medicare Advantage plans this year. The Obama administration has cut reimbursement rates, and profit margins could be hurt even more by a new industry tax being levied on all plans to help offset potential insurer losses on exchange enrollment.

(Read more: Families struggle to pay medical bills)

Stifel analyst Thomas Carroll calculates the new tax will amount to $3.16 per share for WellPoint. He estimates the insurer will partly offset it by increasing the price of its commercial plans, and will likely see a 70 percent to 80 percent reimbursement rate from states for Medicaid plans, and may be able to recoup about 50 percent of it on Medicare Advantage plans.

"All in, we believe the impact of the tax will be far less than $1 per share," Carroll wrote in a note to clients.

When it comes to 2014 earnings and revenue guidance, analysts expect WellPoint will hold off on providing full details until its investor day on March 21.

Susquehanna's Rigg said he expects it will take time for insurers to get a sense of how Obamacare will impact results this year, because open enrollment for exchange plans runs through the first quarter.

"We won't truly know how the enrollment period went until April or even May."

—By CNBC's Bertha Coombs. Follow her on Twitter: @berthacoombs.

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