- 03Nov
(Reuters) - WellPoint Inc (WLP.N) and Aetna Inc (AET.N) raised their profit forecasts for the year as members avoided doctor visits or delayed care to save money, and the large U.S. health insurers should see an improved political environment for their business under the new Congress.
Both companies reported higher-than-expected quarterly profits on Wednesday, saying they benefited from having to pay out less in medical costs.
But investors were focused on the future of U.S. healthcare reform after Republicans captured the House of Representatives and made gains in the Senate in Tuesday's midterm elections.
Analysts have said health insurer stocks could rise 5 percent to 15 percent over the next couple of months, even after gaining on expectations of a Republican win in recent weeks.
"With a Republican Congress, I think that (with) the political environment as well as the regulatory risks, we're in a modestly improved position from earlier in the year," Leerink Swann analyst Jason Gurda said.
Shares of Aetna rose 1.2 percent on Wednesday, while WellPoint fell 2.1 percent, and the Morgan Stanley Healthcare Payor Index .HMO declined 0.9 percent.
Aetna, the No. 3 U.S. health insurer, said earnings rose as members cut their use of healthcare services. The industry has benefited all year from lower medical costs as patients postpone procedures in the weak economy.
"Let's face it: the consumer has retrenched," Aetna Chief Financial Officer Joseph Zubretsky said in an interview. "We think that has had a very, very dramatic impact on the level of utilization."
WellPoint, the largest U.S. health insurer by membership, said lower medical costs also resulted in part from a less intense flu season and its actions to control hospital rates.
PROFITS WELL AHEAD OF ESTIMATES
WellPoint, which like rivals has been shedding members as employers cut jobs, nonetheless lifted its year-end enrollment forecast by 200,000 members to 33.3 million due to stabilizing trends in its commercial business which serves employers. It projected a slight increase in overall enrollment next year.
Company executives told analysts on a conference call that while unemployment has leveled off, WellPoint is not expecting significant job gains next year.
Aetna and WellPoint followed rivals this quarter in posting third-quarter results well ahead of targets, but declining to give specific forecasts for next year, keeping any positive market momentum in check.
The industry and Wall Street are waiting for the U.S. government to finalize regulations under the health reform law that will mandate how much the companies must spend on medical costs.
WellPoint's net income edged up to $739.1 million, or $1.84 per share, from $730.2 million, or $1.53 per share, a year earlier.
Excluding items, earnings of $1.74 per share were 16 cents ahead of the analysts' average estimate, according to Thomson Reuters I/B/E/S.
WellPoint, which serves members under Blue Cross and Blue Shield plans in 14 states, pointed to lower administrative costs resulting from a savings push and from the sale of its NextRx drug benefit unit to Express Scripts Inc (ESRX.O).
Revenue fell nearly 6 percent to $14.33 billion. Analysts looked for $14.21 billion.
WellPoint said it expected a loss of $150 million this year in its business providing coverage to individuals in California, where its rate increases were delayed. The insurer's initial bid to raise rates in the state drew sharp criticism during the healthcare reform debate.
Indianapolis-based WellPoint projected net income of "at least" $6.60 per share for 2010, up from its prior outlook of at least $6.30. Its full-year forecast excluding items is $6.45.
Aetna's net income jumped to $497.6 million, or $1.19 per share, from $326.2 million, or 73 cents per share, a year earlier.
Excluding items, the Hartford, Connecticut-based company reported operating earnings of $1.00 per share, and 84 cents per share excluding further positive claim reserves from prior periods. Analysts were looking for 67 cents.
Aetna's revenue slipped 2 percent to $8.54 billion, reflecting a decrease in lower membership in its commercial plans. Analysts looked for $8.47 billion.
Membership stood at 18.53 million at the end of September.
Aetna forecast 2010 earnings of about $3.60 per share, excluding items, up from its previous forecast of $3.05 to $3.15.
