Jan. 29 (Bloomberg) — WellPoint Inc. said fourth-quarter profit plunged 68 percent as consumers concerned about Obamacare's impending changes flocked to doctors in higher numbers than anticipated.
The second-biggest U.S. medical insurer said it saw "higher utilization" in advance of Jan. 1, when the health law's new insurance plans debuted. Higher medical costs, along with a $160.7 million loss on the sale of two eyewear businesses, helped send earnings down, the Indianapolis-based company said in a statement. Earnings excluding one-time items met the average analyst estimate.
The health-care overhaul got off to a rocky start in October, when disruptions and delays made it difficult to sign up for coverage online. Millions of Americans then learned their existing insurance plans would be terminated because they didn't meet the law's new standards. While the Obama administration extended those policies for a year, people rushed to doctors before the new year, WellPoint said.
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"A lot of it came from those individuals who were maybe uncertain" about their coverage, said Kristin Binns, a company spokeswoman, in a telephone interview today. "You had this dynamic where individuals are having difficulty shopping for new plans and they've received policy cancellation notices."
Skewing older
WellPoint rose 1.7 percent to $85.77 at 10:03 a.m. in New York trading. Through yesterday, the stock had gained 28 percent in the past 12 months.
The insurer said other aspects of the Patient Protection and Affordable Care Act's rollout were hewing closer to expectations. The company has added about 500,000 individual members since the law's online insurance exchanges opened in October, Chief Executive Officer Joseph Swedish told analysts on a conference call today.
While the membership is older and sicker, and likely costlier to care for, than the general population, that was expected and WellPoint set prices accordingly, he said.
"We are encouraged by the trajectory of our membership," Swedish said in today's statement. "And we are optimistic about the opportunity we have to serve a growing part of the marketplace."
Fourth-quarter net income dropped to $148.2 million, or 49 cents a share, from $464.2 million, or $1.51, a year earlier, WellPoint said in its statement. Earnings excluding one-time items including the eyewear deals matched the 87-cent average of six analysts' estimates compiled by Bloomberg.
Glasses.com
Swedish announced the sale of 1-800 Contacts and Glasses.com on Jan. 7, just 18 months after his predecessor bought the eyewear business. WellPoint faces rising costs and enrollment this year with the opening of new insurance exchanges under the Affordable Care Act, better known as Obamacare, and Swedish said he wants to focus on "core growth opportunities."
"The market doesn't fully comprehend just how much pressure the plans participating on exchanges are under right now," said Carl McDonald, an analyst at New York-based Citigroup, in a Jan. 25 note to clients. The Obama administration's late November rule change to extend canceled policies left insurers with "staggering" administrative challenges, he said.
WellPoint, which runs Blue Cross plans in 14 states, said it expects more than 1 million new enrollees this year, although it didn't say how much if any of that was due to Obamacare. The company ended 2013 with 35.7 million members.
2014 outlook
The insurer reiterated that 2014 net income is expected to be more than $8 a share. Analysts had estimated $8.37 a share, on average. Fourth-quarter revenue jumped 16 percent to $17.9 billion.
WellPoint agreed to sell 1-800-Contacts to private equity firm Thomas H. Lee Partners LP and Glasses.com to Luxottica Group SpA. Financial terms weren't disclosed. The deal would result in a charge of 52 cents to 57 cents a share for the fourth quarter, WellPoint said in a Jan. 7 statement.
The insurer spent 87.8 percent of the premiums it collected in the fourth quarter on medical care, up from 87.3 percent a year earlier, according to today's statement. The figure, known as the medical cost ratio, is watched by analysts as a sign of future profitability.
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