Insurer WellPoint says 2nd-quarter profit increased and medical spending fell; raises outlook

WellPoint’s 2Q profit rises 4 percent

INDIANAPOLIS — Insurer WellPoint said Wednesday its second-quarter net income rose 4 percent due to favorable reserve development, even as commercial enrollment continued to tumble in a tough economy.

The Indianapolis insurer said it earned $722.4 million, or $1.71 per share, in the three months ended June 30. Excluding investment gains, earnings per share were $1.67. Per-share results are helped by fewer shares outstanding.

Operating revenue, which does not count investment gains or losses, fell 7 percent to $14.22 billion.

Analysts polled by Thomson Reuters forecast a profit of $1.55 per share on revenue of $14.61 billion.

WellPoint is the largest commercial health insurer based on membership. It said its medical enrollment slipped 2 percent, or by 729,000 people, to 33.5 million during the quarter. Enrollment was down because of the loss of the company’s UniCare individual and group businesses in Texas and Illinois, and because of the weak economy and high unemployment levels.

Enrollment tumbled 4.5 percent to 15.2 million people in WellPoint’s local group business, which provides fully insured coverage to small businesses.

Major health insurers have struggled with costs and enrollment losses tied to the recession, as employers cut jobs and reduced the number of people covered by their insurance. But companies have shown signs this year that trend may be slowing.

Last year, WellPoint said its second-quarter profit fell more than 7 percent, as enrollment dropped 3 percent or by 1.1 million people.

WellPoint competitor UnitedHealth Group Inc. said last week its 2010 second-quarter net income rose 31 percent from a year ago, as costs and enrollment came in better than expected. Tuesday night, Aetna Inc. reported a 42 percent jump in net income partially because it spent a smaller portion of its premium revenue on medical care.

WellPoint said it spent 82.9 percent of its premium revenue on providing medical care during the quarter. That’s down from 83.9 percent in the second quarter of 2009.

These medical-loss ratios give analysts a sense of whether insurance is priced correctly, and they’ll be regulated under the health care reform law Congress passed earlier this year.

Insurers will be required to spend at least 85 percent of their premium revenue on medical care for large group coverage and 80 percent for individual and small group coverage. But details of that law have yet to be ironed out, and its affect on insurers remains uncertain.

The company raised its profit forecast to $6.30 per share from $6 per share. Analysts expect $6.26 per share on average.

WellPoint reported a 51 percent jump in its first-quarter profit, but the insurer also received unwanted attention that quarter for premium hikes for individual customers in California that has made investors nervous.

Last month, it said it would dial down plans to increase premiums by an average of about 25 percent. It now plans to raise premiums by an average of 14 percent, and it will cap the hikes at 20 percent. The insurer has said it expects to lose $100 million this year on that business.

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AP Business Writer Marley Seaman contributed to this report from New York.