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Wellpoint Profit Rises on Higher Membership

Health insurer WellPointsaid on Wednesday that third-quarter profit rose 7 percent, helped by higher membership and improved control of operating costs.

Wellpoint
Wellpoint

The largest U.S. health insurer by membership also projected that 2008 earnings per share will rise by at least 15 percent.

Net income increased to $868 million, or $1.45 per share, from $810.8 million, or $1.29 per share, a year earlier.

Excluding net realized investment gains, earnings were $1.44 per share, in line with analysts' expectations, according to Reuters Estimates. Revenue rose 5.4 percent to $15.2 billion.

Revenue rose 5.4 percent to $15.2 billion.

"It's pretty much an in-line quarter," FTN Midwest analyst Peter Costa said.

Shares of WellPoint fell $1.68, or 2 percent, to $77.80 on the New York Stock Exchange on a down day for rivals and the overall market. Costa said some investors may have expected an outperformance in the quarter.

WellPoint is the second major insurer to report third-quarter earnings. Last week, UnitedHealth Group posted a 15 percent rise in profit, but analysts were disappointed with its forecast.

Indianapolis-based WellPoint, which operates Blue Cross Blue Shield plans, has struggled this year with health-care costs for its Medicaid plans for low-income Americans and has shuffled its top executives.

Health plan membership totaled 34.8 million people at the end of the quarter, an increase of 615,000 from a year earlier and 38,000 more than at the end of the second quarter.

Additions to its national accounts and Medicaid business drove the membership gains from a year before.

However, WellPoint saw declines from the second quarter in membership in its non-Blues plans. The company has named a new president for its Unicare unit overseeing such plans, and is refocusing Unicare strategy.

WellPoint's benefit expense ratio -- the percent of premiums spent on medical costs -- worsened to 81.8 percent from 81.3 percent a year earlier due largely to costs in its Medicare and Medicaid plans.

WellPoint expects to receive rate increases in California and Connecticut, two states where Medicaid has dragged on the company's results this year. WellPoint is the largest U.S. provider of Medicaid plans.

Sales, general and administrative expenses improved to 14.6 percent of revenue from 15.5 percent a year earlier.

The company nudged up its 2007 profit forecast by a penny to $5.56 per share, while slightly reducing its projection for full-year revenue and membership at year-end.

WellPoint said it is committed to earnings-per-share growth of at least 15 percent, although it said it would provide a specific 2008 outlook in December.

Goldman Sachs analyst Matthew Borsch said in a research note that WellPoint's outlook implies 2008 earnings per share of about $6.40, 2 cents above Wall Street's target.

WellPoint has steadily reduced its membership forecast to adding 800,000 members by the end of 2007 from an initial target of 1.4 million.

For 2008, the company projects stronger membership growth in its national accounts business as well as new enrollees from Medicaid contracts in South Carolina and Indiana.

"We're certain about a fair amount of this growth," WellPoint Chief Executive Angela Braly said on a conference call with analysts.

In the past year, WellPoint has announced the departures of its chief executive and chief financial officer, as well as the head of its commercial and consumer unit.

WellPoint shares are unchanged for 2007, underperforming an 11 percent rise for the Morgan Stanley Healthcare Payor index, a broad gauge of health insurer stocks.

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