Managed care provider WellPoint said on Wednesday profit rose 23%, in line with estimates, on strong enrollment in its national accounts and tighter controls on administrative expenses, although medical cost trends worsened.
Shares of the Wellpoint , which ranks first in membership in the U.S. market, dipped as much as 3.9% after WellPoint cited issues with several government businesses for its worse-than-expected medical cost ratio. But the shares later recovered almost entirely as WellPoint said the disappointment did not have a material impact on profitability.
"People are realizing that the problem is smaller and mostly just with the Medicaid business," said FTN Midwest analyst Peter Costa. Medicaid plans, which are government health programs for low-income Americans, make up a small portion of WellPoint's overall business.
The company said it earned $801.1 million, or $1.28 a share, in the fourth quarter, up from $652 million, or $1.04 a share, in the same quarter a year ago. Excluding a net investment gain, the company earned $1.27 a share, right in line with the Thomson Financial consensus estimates.
Operating revenues rose nearly 29% from the same quarter a year ago to $14.3 billion, but that was shy of the consensus of $14.51 billion.
However, the benefit expense ratio -- a closely watched barometer that measures medical costs as a percentage of premium dollars -- worsened to 81.1% from 79.7%.
Reasons for that worse-than-expected result, WellPoint said, included fast starts in three state Medicaid plans for low-income Americans that tend to have higher such ratios.
Also, claims in a federal employee contract did not fall as much as anticipated, and the ratio for WellPoint's Medicare prescription drug plans for seniors did not improve as much as
Still, Chief Financial Officer David Colby told analysts on a conference call that although those factors hurt the benefit ratio they "did not have a material impact on profitability."
Membership rose by 245,000 to 34.1 million by the end of 2006. Excluding an accounting adjustment related to a Medicaid joint venture, enrollment was up by 467,000 members, or 1.4%, from a year ago.
Driving the increase was a gain in the national accounts business, which offers plans to large companies with employees in more than one state.
WellPoint's administrative expense ratio fell to 15.7% in the quarter from 16.7% a year earlier,
although it rose slightly from the third quarter.
The Indianapolis-based company repeated its 2007 forecast of net income of $5.53 per share, right in line with analysts' estimates, on operating revenue of about $61.9 billion.
WellPoint also forecast first-quarter net income of $1.25 per share, compared with analyst estimates of $1.26.