Earnings Preview: WellPoint Inc.

Health insurer WellPoint Inc. is to report its 1st-quarter results on Wednesday

Associated Press

INDIANAPOLIS (AP) -- Health insurer WellPoint Inc. will report its first-quarter earnings Wednesday, giving analysts and investors another layer of insight into trends in health care costs.

WHAT TO WATCH FOR: Competitor UnitedHealth Group Inc. said last week that its largest expense, medical costs, jumped 6 percent. The insurer said it saw only a "modest" increase in use and the increase was mostly due to increases in prices that providers receive for care.

Lower-than-expected growth in health care use has helped insurers for the past several quarters. Analysts are looking for signs that this trend, which typically lingers after a recession, is changing with patients deciding to spend more on health care after saving money during a tough economy.

Insurers have said they expect use to increase this year, but it's expected to remain below pre-recession levels. UnitedHealth saw an increase in outpatient care like doctor visits in its first quarter, but growth in more expensive inpatient care remains slow.

WellPoint said earlier this year that its medical claims increased in the fourth quarter mostly due to a big hit from the company's Medicare Advantage business. It said it lost $50 million in the quarter and $150 million in 2011 due to a Northern California plan that attracted more customers with a higher risk profile than the insurer expected because a competitor left the market. Those customers generated more in claims than they provided in premiums.

WellPoint discontinued the plan and does not expect that to repeat in 2012.

WHY IT MATTERS: WellPoint runs Blue Cross Blue Shield plans in 14 states, including California, New York and Ohio. It had 34.3 million people enrolled in its health insurance coverage at the end of 2011. The company is the second-largest health insurer, trailing UnitedHealth.

WHAT'S EXPECTED: Analysts surveyed by FactSet expect, on average, adjusted earnings of $2.27 per share on $15.41 billion in revenue.

LAST YEAR'S QUARTER: WellPoint's net income rose nearly 6 percent to $926.6 million, or $2.44 per share, in the first quarter of 2011, as total revenue fell slightly to $14.89 billion. The company said a drop in expenses helped its performance. Selling, general and administrative expenses fell, and medical costs came in lower than expected.

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