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Ahead of the Bell: WellPoint helps govt business

The Associated Press

WellPoint's recently completed purchase of Amerigroup will boost the amount of government business it captures, BMO Capital said in a report Thursday.

The Indianapolis insurer said Monday it completed a $4.46 billion deal it first announced in July to buy Amerigroup Corp., which runs Medicaid coverage in several states. Medicaid is the state and federally funded program that provides health coverage to poor and disabled people.

States are starting to move residents who qualify for both Medicaid and Medicare, the federally-funded program for people over age 65 and the disabled, into managed care programs that coordinate their care. These so-called "dual eligible" patients generally have chronic or expensive medical conditions, but analysts and insurers see the population as a potentially lucrative business for insurers.

In 2014, more people also will become eligible for Medicaid as part of coverage expansions under the health care overhaul.

WellPoint said its Medicaid business will now serve about 4.5 million people in 20 states.

Shove said in a Wednesday morning research note he adjusted his WellPoint earnings estimates for this year and 2013 to account for the deal. That includes factoring in higher Medicaid enrollment and interest expenses for debt.

"With the addition of (Amerigroup), WellPoint's business will likely be better exposed to government payments while fundamentals will likely remain intact," Shove wrote.

Shove lowered his 2012 earnings expectation for the insurer by four cents to $7.51 per share, and he raised his 2013 expectation a penny to $8.12 per share.

Earlier this month, WellPoint reaffirmed its forecast for 2012 adjusted earnings of $7.30 to $7.40 per share, which doesn't count investment gains and litigation or acquisition costs. The company will release its earnings forecast for the new year in early 2013.

Analysts surveyed by FactSet expect, on average, earnings of $7.48 per share from WellPoint this year and $7.94 per share next year.

WellPoint Inc. is the nation's second largest health insurer. It runs Blue Cross Blue Shield plans in several states.