WellPoint's Growth Is Coming From the Uninsured

TheStreet.com

NEW YORK (TheStreet) -- Even though WellPoint experienced a fourth-quarter plunge of 68% in its profits, it is not because the company is performing poorly. It is due to impairment costs.

Revenue improved in the fourth quarter of 2013, as they should since most health insurers are posting strong financial positions in 2013 because patients are staying away from doctor's offices and hospitals trying to keep their medical bills at a minimum while the economy struggles along to improve.

There may be a big discrepancy in fourth-quarter (year-over-year) production numbers, but don't be deceived it's not as bad as it looks.

  • 4Q 2012-- $464.2 million profit/$1.51 per share
  • 4Q 2013-- $148.2 million profit/49 cents per share

These numbers look like the company did very poorly the fourth quarter of 2013, but there are two things to keep in mind.

  • In 2012 the fourth quarter benefited from a 46 cents per share tax settlement gain.
  • In 2013 the fourth quarter struggled with a 55 cents per share impairment of intangible assets.

Operating revenue rose more than 15% in the fourth quarter of 2013, barely missing analyst's expectations of $17.78 billion.

WLP has done well in 2013 and should continue to do well in 2014 because of the changes taking place in health care.

The Affordable Care Act is still expected to drive this company's success. It may take a little longer than expected as the government continues to iron out some problems it has with the website, but WellPoint is expected to benefit significantly with increased revenues.

In fact, WellPoint said enrollment in its health care plans under ACA is ahead of expectations. For 2014, the company's goal is to add over one million new customers across a number of landscapes including individual plans and government plans.

So far this year, 80% of new applications are people previously not covered by the insurance carrier. Even though it's early, the company expects its EPS for 2014 to be above eight dollars per share close to the same figures in 2013.

Both small businesses and individuals that have been with the company before the implementation of ACA should move over to compliant plans and the increase in new clients that haven't had insurance before should benefit the company.

To show how the business is prospering, its "commercial business revenue" was its largest leader this last quarter when he came in at $9.76 billion.

Not every company that WellPoint competes with is so willing to embrace ACA. Aetna's CEO Mark Bertolini has been an outspoken opponent of the problems that the new insurance has caused. He did point out that ACA's plan to attract the uninsured wasn't working and that the program is simply moving people with private coverage to public coverage while the government subsidizes their medical costs.

Early on in enrollment, only 11% came from the uninsured. Bertolini is concerned for his company and wants to make sure Aetna does not lose money on ACA accounts.

Whether it's through transfers or taking care of the uninsured, the exchanges are here to stay and Aetna believes that by 2020 75 million people will be covered under health insurance through the exchanges.

Real growth may take place with health carriers that have contracts with state Medicaid programs. State lawmakers are turning more patients who are eligible for Medicaid over to privately contracted insurance companies because part of the health law provides $900 billion to expand the Medicaid program.

Stephen J. Hemsley, chief executive officer at UnitedHealth Group , stated that he expected strong growth from established Medicaid programs that are expanded through ACA.

All the main health carriers -- Humana , Aetna, WellPoint, Centene and UnitedHealth -- will grow their Medicaid portfolios and increase revenue this way. For those health plans that specialize in low-income populations, revenue should increase greatly for the next few years. Medicaid health plans are expected to grow by 20% in 2014 and by nearly 40% through 2016.

These statistics come from a study by a research and advisory service that tracks ACA statistics, Avalere Health.

Companies like WellPoint will continue to increase revenue because of ACA. Despite the pros and cons, the program should help the larger insurance companies like WellPoint increase clients. The real question is going to be to see how companiess will be able to cope with the prices and the claims. Will WellPoint be able to stay profitable? This is something the time will tell.


At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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