WellPoint

If health plan profits keep falling, selloffs may begin

Anne Zieger — Tue, 18 Nov 2008 10:53:22 -0500

Health plan profits are falling, and given the trends in the U.S. economy and healthcare costs generally, this trend is likely to linger for a while. And if falling profits remain a fact of life for the plans, it's likely to spawn a series of plan selloffs that will bring further consolidation to an industry that has already seen lots of large mergers in recent years, observers note. For the short term, some--like WellPoint--have kept their bottom lines healthy by raising premiums, but they can only do that for so long before employers drop them, experts say.

With returns on their investments dropping, medical costs climbing and membership falling, publicly-traded health plans have taken it on the chin. Though WellPoint did see an increase in earnings per share, every publicly-traded health plan saw profits fall in the third quarter. Many are telling investors to continue to expect bad times. For example, after third-quarter profits fell 39 percent, partly due to investment losses, Aetna has told its investors that it can't commit any longer to its long-term operating earnings per share growth goal of 15 percent.

So which plans will likely sell out to survive? Stock analysts say Los Angeles-based Health Net and Bethesda, MD-based Coventry Health Care are strong candidates, as they're struggling more than some of their competitors.

To learn more about the health plan business's status:
- read this AMNews piece

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NJ Blue change to for-profit could prompt wave of followers

Anne Zieger — Tue, 16 Sep 2008 22:51:26 -0400

Right now, executives with Horizon Blue Cross Blue Shield of New Jersey are nervously waiting to find out whether the state attorney general and insurance commissioner will let it convert itself from a not-for-profit entity to a for-profit. At the moment, however, no one knows whether the health plan will succeed in getting regulatory permission to do so. If it does get such permission, the conversion is likely to have an impact on the health insurance industry as a whole, experts say.

Horizon tried to make the same switch in the mid-1990s by merging with another Blue plan, but couldn't get permission from the state. This time around, it's prepared to buy its transformation by giving the state $1 billion, under the terms of a 2001 law authorizing such health plan conversions, which has to be attractive in a state with a big budget deficit. On the other hand, the deal has some enemies, including most of the state's other health plans.

If Horizon succeeds, observers say, it could lead to the start of a new wave of not-for-profit to for-profit Blue conversions. Many other Blue plans have publicly complained that they don't have the scope of operations, local competitive position and capital to compete with national giants like Aetna and UnitedHealth Group, and are likely to try again if Horizon wins the day.

WellPoint is a likely candidate to consolidate such companies once they go private, and is almost certainly going to snap up Horizon if it converts itself, they suggest. They note that in 1997, Anthem (now WellPoint) attempted to acquire Horizon, but couldn't get state court permission. More significantly, WellPoint currently owns every one of the 14 for-profit Blues plans in the continental U.S.

To learn more about this trend:
- read this AMNews piece

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WellPoint pushes stock prices up, but not profits, by raising premiums

Anne Zieger — Wed, 10 Sep 2008 01:34:30 -0400

Five months ago, Angela Braly, the CEO of health plan giant WellPoint, told investors that the plan could turn around falling profits by raising premiums and squeezing providers harder on fees. (OK, she didn't say "squeeze," but that was the idea.) At the time, Braly was struggling to calm Wall Street after missing its first-quarter profit estimates by a wide margin. Your editor suggested that this just wasn't going to happen the way she described, since raising premiums in the current environment can make a lot of enemies.

Well, Ms. Braly, my apologies for being so skeptical--you've delivered on at least part of what you promised. Since that conference call, Braly has indeed overseen some premium hikes--in some cases fairly substantial ones. Unfortunately, the rest of the plan hasn't gone as hoped. According to the Wall Street Journal, WellPoint has lost a substantial 189,000 members in its individual and business plans, and expects to shed 150,000 more members by December. Some of these defections were from customers who'd bought an allegedly cheaper high-deductible plan, only to find that premiums for some jumped 30 percent or more.

Worse, despite having taken such a beating to please investors--who've rewarded WellPoint by boosting its share price back to better levels--the price is still off by about 40 percent this year. Now, WellPoint is really against the wall since it appears that it simply can't please both investors and employers. The fourth quarter of this year could be a bloodbath if WellPoint doesn't find a way to squeeze savings out of internal operations rather than expanding prices to its customers (which are, of course, what premiums are).

Now, the company is working to both get a better handle on medical costs and speed the consolidation of old claims-processing systems with newer technology. The process, execs say, created some information backlogs that led to artificially low premiums they're now correcting. Hmm...good luck selling that one, folks.

To learn more about WellPoint's struggles:
- read this Wall Street Journal piece (sub. req.)

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WellPoint loses money for Q2, but still pleases investors

Anne Zieger — Mon, 28 Jul 2008 19:57:42 -0400

Giant health plan WellPoint had what most financial types would consider a tough second quarter, with earnings falling 10 percent and its overall profit predictions for 2008 falling. Still, given that these numbers were better than investors expected, the company's stock did OK nonetheless. Perhaps the fact that it raised premiums--as executives vowed to do last quarter--gave investors more confidence that things weren't going south completely.

WellPoint's second-quarter net income fell to $750.5 million or $1.44 a share, from $835.2 million or $1.35 a share, a year earlier. Meanwhile, WellPoint has cut back its 2008 earnings projections, with the company now forecasting profits of $5.42 to $5.57 a share rather than $5.42 to $5.67. (While that's a small difference on the top end, every trim-back hurts, particularly on the Street.)

WellPoint CEO Angela Braly said that the lower forecast comes from bigger drops in enrollment in its commercial plans than it had expected. In fact, the company expects health-plan enrollment to fall by 150,000 in the second half of this year. She also noted that recent settlements with California regulators over its rescission policies for individual policy-holders have had an impact.

That being said, executives were able to point to some successes. For example, WellPoint cut its backlog of medical claims by 23 percent from the end of 2007, sped up its claims-paying system and revised its premiums to make sure it won't be taking big medical losses in the future, they said.

To learn more about WellPoint's financial performance:
- read this Wall Street Journal piece (sub. req.)

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WellPoint pays hospitals $11.8M to settle bills from rescissions

Anne Zieger — Tue, 08 Jul 2008 20:32:01 -0400

Leading health plan WellPoint has agreed to pay $11.8 million to settle claims with hundreds of hospitals that it failed to pay after it dropped patients after treatment. WellPoint was sued by about 480 hospitals after it refused to pay them when it dropped policies of individual policyholders. The health plan had dropped these policyholders, it said, because the patients made mistakes on their applications or had pre-existing conditions. The patients, for their part, said that WellPoint subsidiary Anthem Blue Cross had improperly investigated their medical histories for evidence of such conditions after they'd submitted costly medical bills.

In their case, the hospitals said that Anthem should pay, given that the health plan authorized the care for patients who, at the time of treatment at least, were members in good standing. The fact that Blue Cross dropped the patients later had no bearing on the plan's obligation to pay these bills, the hospitals argued. Now the hospitals will be reimbursed for these bills. As part of the settlement, they've agreed to stop trying to collect these bills from the patients.

Anthem (and WellPoint's) legal troubles on this front are far from over, however. It still faces a separate class-action suit from the state's doctors over unpaid bills for patients with canceled policies. There's also a class-action pending that was filed on behalf of more than 6,000 patients whose policies were canceled since 2001. Meanwhile, the state's Department of Managed Health Care is considering piling on more fees, having already imposed a $1 million fine last year after it concluded the rescissions were illegal. The new fines could be as much as $200,000 per violation on about 1,700 disputed cancellations.

To learn more about these legal issues:
- read this Los Angeles Times article

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Health plans need new approaches to profitability

Wed, 14 May 2008 06:59:59 -0400

Now I get it. To get back their healthy profits--which have taken a serious plunge of late--all U.S. health plans have to do is a) raise premiums and b) lower reimbursements for providers. Easy as pie! This, at least, is the line being peddled by the likes of WellPoint CEO Angela Braly who, to her credit, probably didn't even laugh once when she briefed investors.

The truth is, though, rebuilding profit margins by pure muscle is something of a pipe dream. Actually, it's something of a wonder that health plans have been so profitable to date.

While some of the forces that have hit health plans' bottom lines are directly within their control, others--such as the investment climate--aren't going to obey their commands.

For example, WellPoint took its a drubbing on medical costs resulting from its Medicare program. Despite Braly's tough talk, the company can't just turn around and demand whatever premiums it wants from the federal government to make up for those losses. Actually, boosting Medicare plan income is a tricky game that involves improving your "risk adjustment factor." Sure, WellPoint may succeed, but not overnight.

What about demanding lower prices from doctors and hospitals? Sure, health plans can and will try to accomplish this, as they always do. No doubt, they'll succeed in some cases.

But while the evidence is fragmentary, some statistics I've seen suggest that very gradually, physicians are dropping managed care contracts when push comes to shove, or at least limiting the percentage of volume managed care represents in their practice. Hospitals are perhaps a bit slower to do so, but they are getting tougher on this front, too.

So, are health plans going to get much juice out of bullying providers? Probably not a lot more than they are from any other hard-nosed contracting sessions.

All told, it seems that health plans will need to try some new tricks--new partnerships with providers, new medical-cost management models (medical homes? chronic-care management programs? telemedicine?) or new investment models (buying up medical real estate? running health IT companies?). What I'm pretty sure of is that squeezing more blood out of provider and employer turnips isn't going to cut it. - Anne

Health plans to boost premiums, squeeze providers

Wed, 14 May 2008 06:59:57 -0400

As readers know, several leading health plans have taken a profitability beating over the last several months, for reasons that include operational issues, medical costs and losses in the financial markets. WellPoint, for one, missed Wall Street's first-quarter profit estimates by a wide margin, something that made financial analysts more than a bit nervous.

Now, hoping to calm watchers on the Street, industry leaders like WellPoint and UnitedHealth Group are assuring investors that they plan to raise premiums enough to stabilize their income--even if it means losing some members. "We will not sacrifice profitability for membership," WellPoint President and CEO Angela Braly recently told analysts during a conference call.

At the same time, the plans are promising to use their muscle to get better deals from their provider networks. This vow isn't surprising, given that both the plans and analysts see medical costs as a critical factor in sapping industry profits this year. However, it's not clear that plans like UnitedHealth--already known for extremely aggressive negotiations--can cut reimbursement any further.

To learn more about this trend:
- read this AMNews article

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Fear and trembling in health plan land

Wed, 07 May 2008 06:59:59 -0400

Well, this week caps it. It seems like we're looking at just about a clean sweep where bad-news health plan financials are concerned: UnitedHealth Group, Humana, Cigna, WellPoint, Kaiser and Health Net have already taken a hit, and that's just for the first quarter. It's hard to imagine the second quarter of this year will bring dramatically better news, either.

Now, it's worth noting that we're talking primarily about plans that have watched profits fall, not plans who've sunk into the red. It's not like WellPoint or Kaiser are headed for bankruptcy court by any means. But we are talking about a shock to the industry--and some plans are indeed in the hole. For example, Moody's has placed Health Net's senior debt on review for a downgrade following its first quarter net loss of $35.7 million.

So what's going on here? A lot of different factors seem to be in play, including the turmoil in the financial markets, medical costs, legal and regulatory issues, and more. For example, as you'll see in today's newsletter, Kaiser attributed its losses largely to the subprime mortgage debacle. Oxford Health Plans, meanwhile, reported a medical loss ratio of 102.8 percent in addition to losing money on Wall Street. (In other words, for those that don't speak insurance, Oxford paid out almost $1.03 for every premium dollar it took in.) Health Net took a drubbing, in part, because it had to pay off regulators in California who were fed up with its practice of canceling individual policies after they were issued.

Once Wall Street recovers, the plans' investment income will again cover a multitude of sins, and the industry will regain its swagger. In the meantime, things aren't going to be pleasant for its leaders, and providers who have to strike deals with them may find themselves getting savaged. After all, it can be dangerous to be trapped in a room with a rabid health plan executive. - Anne

Following peers, Kaiser profits plunge

Wed, 07 May 2008 06:59:58 -0400

As FierceHealthFinance readers probably know, the last few weeks have been ugly for health plans, many of which announced disappointing first-quarter results. True, it's worth bearing in mind that most are still profitable, but on the other hand, their margins seem to be in freefall--something neither shareholders nor Wall Street take lightly. Many of the industry's big names are being hit by this trend, including UnitedHealth Group, Humana, Cigna, WellPoint and Health Net.

This week, Kaiser Foundation Hospitals and Health Plan joined the list of unfortunates, announcing that it saw a 64 percent drop in net income during the first quarter of this year compared to the same quarter last year. Profits plunged $698 million during the first quarter of last year to $250 million for the first quarter of this one. The descent includes a loss of $295 million in non-operating income for the first quarter of 2008 versus a $177 million profit during the first quarter of 2007, which it attributes to weakness in its investment portfolio.

Meanwhile, Kaiser increased net income from $521 million during the first quarter of last year to $545 million this year, a boost that includes the addition of 25,000 members. Operating income climbed from $9.4 billion during the first quarter of last year to $10.1 billion for the first quarter of this year. Furthermore, Kaiser said it provided more than $1 billion in community benefit during 2007.

To learn more about Kaiser's results:
- read this East Bay Business Times article
- read this Kaiser press release

PLUS: Kaiser has announced that it's completed the rollout out of its immensely expensive outpatient electronic medical system, which cost the organization a cool $4 billion, executives said. Article

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Insurer troubles could mean more bad debt for providers

Wed, 30 Apr 2008 06:59:58 -0400

In recent weeks, health insurers have started announcing financial results, and the news hasn't been good. WellPoint, for example, saw profits fall 25 percent, and UnitedHealth Group recently lowered its 2008 profit outlook by 40 cents per share. With insurers feeling financial pain, they're likely to raise premiums next year. In response, companies are likely to ask employees to carry more healthcare costs, industry watchers say. The net effect of all of this buck-passing is that with consumers facing higher bills, providers are likely to face high levels of bad debt, financial analysts predict. That's the case, in part, because consumers will be facing not only higher bills, but also a tougher economy and challenging job market, both of which further limit their ability to pay down medical debt. Add that to confusion over the use of the National Provider Identifier on Medicare claims--which could slow payments substantially--and 2009 is shaping up to be a very difficult year for providers, especially hospitals, healthcare analysts warn.

To learn more about this trend:
- read this InsideARM piece

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