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WellPoint earnings top views; enrollment a worry

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WellPoint Inc. trumped Wall Street’s first-quarter profit expectations on Wednesday, but sliding enrollment and the shaky economy prompted the health insurer to issue a cautious outlook for the rest of 2009.

The largest private insurer based on enrollment said it lost 814,000 members compared with the same quarter last year, a 2 percent drop, as employers laid off workers and the insurer ended Medicaid business in Ohio and Connecticut.

That helped prompt WellPoint to narrow — and not raise — its earnings guidance for 2009.

“Given the experience that we’ve seen in the economy over the last couple of quarters, we thought it was appropriate not to guide higher at this point,” Chief Executive Angela Braly said.

WellPoint said it earned $580.4 million in the first quarter, down 1 percent from $588.1 million. A stock buyback helped boost earnings per share to $1.16 from $1.07.

Total revenue fell more than 2 percent to $15.14 billion compared with the first quarter of 2008.

The company also reported $228.4 million, or 46 cents per share, in after-tax realized investment losses. WellPoint’s adjusted profit, which excludes those losses, was $1.62 per share.

That topped analyst profit expectations of $1.25 per share, according to Thomson Reuters. Analysts exclude one-time charges like the investment losses.

Thomson Reuters also said analysts expected $15.57 billion in total revenue.

WellPoint’s benefit expense ratio, or the percentage of premium revenue spent on medical care, dropped to 81.6 percent from 85.1 percent a year ago, as WellPoint

The company attributed that to operational improvements in some of its segments and more disciplined pricing, among other factors. But Chief Financial Officer Wayne DeVeydt said he expects that percentage to rise the rest of the year, as customers use up their deductibles.

The insurer improved its ability to see medical cost trends, which helped it set better prices this year, Edward Jones analyst Steve Shubitz said.

“They got better pricing on their contracts, but they’re losing enrollment, and that’s kind of a concern going forward,” said Edward Jones analyst Steve Shubitz. “It’s particularly the small employers, that’s where they’re really losing business faster.”

The company’s enrollment loss was due almost entirely to rising unemployment, not a loss of customers, DeVeydt said.

WellPoint now expects enrollment to fall to about 33.9 million people by the end of the year, a 3-percent drop from the end of 2008.

The insurer operates Blue Cross and Blue Shield plans in 14 states. It expects double-digit unemployment rates in some key states by the end of 2009. DeVeydt noted that California already hit 10 percent.

Due in part to those figures, the company said its 2009 profit outlook was now $5.14 to $5.20 per share. Excluding the investment losses, that represents a range of $5.60 to $5.66 per share, which is narrower than previous guidance of $5.51 to $5.66 per share.

Analysts expect $5.62 per share.

WellPoint became the second health insurer to top analyst expectations by a large margin in the first quarter. Minnetonka, Minn.-based UnitedHealth Group Inc. also reported a small profit drop Tuesday but beat analyst expectations by 13 cents a share.

“The broad industry themes of stronger 2009 commercial pricing, stable medical cost trends, improved Medicare margins, and continued share buybacks have driven strong results thus far,” Wachovia analyst Matt Perry wrote in a research note.

Even so, WellPoint’s stock rose only 7 cents to $41.83 in Wednesday afternoon trading. Shubitz said he thinks investors are concerned about enrollment, the overall economy and the possibility of health care reform.

“I think that largely keeps a cap on how high these stocks will go,” he said. “Everybody agrees that there will be some type of health care reform, it’s just the question of what exactly does it look like.”

AP Business Writer Marley Seaman in New York contributed to this story.

© 2009 Associated Press. Displayed by permission. All rights reserved.

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