WellPoint made a very big bet on Obamacare, and investors expect the nation's largest provider of Blue Cross plans to report large membership gains from the Affordable Care Act when it reports earnings this week.
Analysts expect the nation's second-largest insurer to report a profit of $2.12 per share, on revenue of $17.96 billion in its latest quarter, according to Thomson Reuters.
Last month, the company boosted its full-year earnings outlook to $8.20 per share from $8, and projected it would see 3 percent to 4 percent growth in membership, or the addition of roughly 1.3 million new members this year.
Three key things to watch when WellPoint reports ahead of the bell Thursday:
1. Obamacare Enrollment. WellPoint offered Obamacare exchange plans in the 14 states where it already operated, and is expected to have the largest market share of any of the major carriers.
Leerink analyst Ana Gupte estimated WellPoint gained 1.2 million new members by the end of the March ACA enrollment deadline, with nearly half of the enrollees coming from California and New York. In addition, she expects that the insurer added 400,000 new Medicaid enrollees.
The big question is whether WellPoint priced those plans correctly. During its fourth-quarter conference call in January, the company said it was confident from early data that it had priced plans profitably, and projected margins of 3 percent to 5 percent.
2. Sovaldi Costs. Another big risk for insurer profits this year is the explosive launch of Gilead's expensive new hepatitis C drug Sovaldi, which costs $84,000 for a 12-week regimen.
UnitedHealth Group reported spending $100 million on Sovaldi and hepatitis C treatments in the first quarter, which was more than expected. But Aetna and Centene reported lower hep C costs, which were in line with their projections.
WellPoint said it had filled 100 Sovaldi prescriptions for commercial members through mid-February. Gupte estimated that WellPoint could see close to 1,300 patients across its commercial, Medicaid and Medicare membership on the drug this year, which could hurt profits by as much as 22 cents per share.
3. Medicare Rate Impact. Government Medicare Advantage reimbursement cuts have posed an earnings headwind for some of the major insurers. Yet, membership continues to grow, with roughly 10,000 baby boomers a day becoming eligible for Medicare coverage.
Citi analyst Carl McDonald estimated that WellPoint added 30,000 new Medicare plan customers in the first quarter, which would add $500 million in annual premiums.
"But it has no impact on earnings for the year or the quarterly progression," he explained in a note to clients, "since new Medicare members are usually a lot less profitable than more mature Medicare lives."
—By CNBC's Bertha Coombs.