Advertisement
News
Advertisement

Health insurers forecast smaller profits in 2011

Wed, 01/26/2011 - 12:45pm
TOM MURPHY - AP Business Writer - Associated Press

Health insurers rode momentum from a drop in claims to strong finishes in 2010, but this year promises a different story.

Health care use is expected to return to normal levels in 2011, while low interest rates and a new health overhaul provision are poised to pinch bottom lines. Those factors and others create a formula for smaller but still-healthy profits.

WellPoint Inc. and UnitedHealth Group Inc., the nation's two largest health insurers, have already said they expect their 2011 earnings to fall below their 2010 results.

Humana Inc. said in December it expects 2011 earnings per share to range from $5.45 to $5.65, while analysts surveyed by FactSet on average expect earnings of $6.04 per share.

Insurers have been buoyed in both the third and fourth quarters by a drop in health care use compared with 2009. Use fell in 2010 after swine flu cases drove up claims at the end of 2009 and because consumers tend to cut back on care during a struggling or recovering economy.

Weather also plays a role: Storms — like the one that swept through New York City in late December — drive down or delay use by keeping people from getting to the doctor's office.

WellPoint, which operates Blue Cross Blue Shield plans in 14 states, said Wednesday medical claims fell 5 percent to $11.35 billion in the final quarter of 2010. That helped the insurer reach a 2010 profit of $2.89 billion, or $6.94 per share.

WellPoint officials say health care use is poised to rebound in 2011. Flu trends are expected to return to normal this year after falling unusually low in 2010. WellPoint Chief Financial Officer Wayne DeVeydt also said he thinks people are feeling more secure about their jobs, so they're less cautious about spending money on health care.

Low interest rates will reduce investment income in 2011, and WellPoint expects no significant increase in employment, which would boost enrollment.

UnitedHealth said last week it earned $4.63 billion, or $4.10 per share, in 2010. For 2011, it forecasts earnings of $3.50 to $3.70 per share and said it will incur added costs from the health care overhaul.

Starting this year, insurers are required to spend minimum percentages of their premiums on medical care or offer rebates to consumers. WellPoint said Wednesday it expects a $300 million hit from that provision.

Aside from the new overhaul provision, insurers also will face a drop in Medicare Advantage reimbursement, Morningstar analyst Matthew Coffina said.

"Those are two really big headwinds," he noted.

WellPoint said it expects a 2011 profit of at least $6.30 per share. Analysts, meanwhile, are looking for $6.57 per share.

DeVeydt said WellPoint is faced with trying to predict the future in an unpredictable environment. He noted, for instance, that the health care overhaul is still evolving, with a steady stream of refinements and clarifications that insurers must adjust to.

"We've taken a cautious view . on the future, and I think that's a prudent thing to do," he said.

Even so, analysts see room for improvement in initial insurer forecasts for 2011. Leerink Swann analyst Jason Gurda said last week he thought UnitedHealth's guidance was conservative and will rise through the year. Coffina expects the same for WellPoint.

"It's a floor," he said. "I don't think management is expecting to earn $6.30."

Shares of WellPoint climbed 85 cents to close Wednesday at $62.55. UnitedHealth fell 37 cents to $40.25, Humana climbed 61 cents to $58.60, Aetna Inc. fell 2 cents to $33.48, and Cigna Corp. rose 44 cents to close at $42.06.

Humana, Aetna and Cigna have yet to report on their fourth-quarter performances.

Advertisement

Share this Story

X
You may login with either your assigned username or your e-mail address.
The password field is case sensitive.
Loading