HealthSpring 1Q10 Net Soars 64%

April 29, 2010

Make that one more, with Medicare plan HealthSpring posting better-than-expected first-quarter profits and raising its 2010 earnings forecast.  The landslide is on as health plans officially pull out of the underwriting downcycle that has plagued the industry over the last couple of years.  HealthSpring’s net income jumped 64% in the first quarter, Medicare Advantage membership rose 36%, and revenues were up 18%.  Medicare Advantage medical cost ratio fell 300 basis points to 78.3%.

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Aetna Joins 1Q10 Blowout Blitz

April 29, 2010

O.K., this is officially a trend.  Buoyed by strong first-quarter performance, Aetna Inc. (Hartford, CT) raised its full-year 2010 earnings forecast to between $2.75 and $2.85 per share, compared to a prior forecast of $2.55 to $2.65.  That makes Aetna the fifth major health plan to report strong first-quarter results, and the fourth major plan to raise its 2010 earnings forecast (see prior post).  The company attributed the strong results to a better-than-expected first-quarter commercial medical cost ratio of 81.1%, down 60 basis points from a year earlier.  Premium rate increases are exceeding medical cost trends of 8.5% to 9.5%, with the company squarely focused on margin improvement over membership growth.  Medical membership fell 2% in the quarter to 18.7 million.


WellPoint 1Q10 Profits Beat the Street

April 28, 2010

Yet another health plan has posted better than expected earnings, with WellPoint Inc. reporting first-quarter 2010 net income of $876.8 million, up 51%, on revenues of $15.099 billion, down 0.3%.  Net margin was 5.8%.  WellPoint is the latest major managed care plan to beat Wall Street expectations in the first quarter — the others including Centene, Humana and UnitedHealth.  Unlike the others, however, WellPoint didn’t raise its 2010 earnings forecast — although Wall Street analysts view the company’s full-year 2010 net income projection of at least $6 per share as somewhat conservative.  The company attributed the strong first quarter in part to lower than expected flu costs.  In additional, medical cost ratio fell 70 basis points to 81.8% compared to a year earlier.


High Risk Pools Likely to Run Dry, Kiplinger Says

April 27, 2010

From The Kiplinger Letter, April 9, 2010:

At least one new health care program’s likely to run out of money too soon.  Subsidized high risk insurance pools for adults with preexisting conditions may run through the $5 billion of federal funds allocated for them long before 2014, when they’ll no longer be needed.  That’s when a ban on insurers denying coverage to affected adults kicks in.  Odds are the statewide pools will be popular, so Congress will have to deal with the dilemma of whether or not to fork over more taxpayer funds.  States that are challenging the law won’t turn up their noses at the money.  And if a state opts not to run the program itself, the feds will get a nonprofit to do it.


Kickin’ Start to 2010 for Health Plans

April 26, 2010

My expectation (see Outlook for Managed Care) was that in 2010 health plan profits would exceed expectations — in some cases by a wide margin.  So far, we’re off to a good start.  UnitedHealth Group reported a 21% increase in first-quarter 2010 net income (earnings per share rose 27%).  The company also increased its 2010 profit forecast. Same for Humana, which reported a 26% increase in first-quarter net income and raised its full-year 2010 profit forecast.  Several factors drove the strong results — but an upswing in the underwriting cycle (i.e., pricing is comfortably ahead of cost trends) was a big factor.  This isn’t surprising and should result in other plans posting blowout 2010 results as well.  The politics of this improved performance won’t be pretty — even though the results aren’t sustainable given the long-term strictures healthcare reform puts on industry economics.

Correction (April 27, 2010): Last line incorrectly read “aren’t unsustainable.”  Corrected to read, “aren’t sustainable.”


Is WellPoint Targeting Breast Cancer Patients for Rescission?

April 23, 2010

I must confess I have a chauvinistic bias that in general women are better human beings than men.  However, I may have to reevaluate that position if there’s any truth to the recent Reuters report that WellPoint — a company headed by a woman — is using a software algorithm to target women with breast cancer so that the company can find pretexts for canceling their health insurance.  WellPoint denies that it singles out women with breast cancer for rescission (the retroactive canceling of a member’s insurance policy) — noting that its software “is used to look at a series of diagnostic codes meant to capture conditions that applicants would likely have known about at the time they applied for coverage.”  In other words, the software is supposed to help identify people who committed fraud by lying on their insurance application.  The company says less than one-tenth of 1% of its individual insurance policies are rescinded.

The Reuters report puts WellPoint back in the crosshairs of the Obama Administration, with HHS Secretary Sebelius calling the rescissions “unconscionable” and “deplorable” in a letter to WellPoint chief executive Angela Braly.  More broadly, actions like the one WellPoint is being accused of are a primary reason why we have healthcare reform — i.e., the industry’s fundamental failure to consistently provide members with the healthcare coverage they need — and have paid for — when they are sick.  (And I’m not talking about legitimate cases where health plans deny questionable or experimental treatments with limited or unproven benefits).  Unless the industry seriously addresses this issue, the regulatory hammer — along with public opinion — is only going to come down harder.

Addition, April 28, 2010: WellPoint announces it will implement federal rescission reforms effective May 1, ahead of healthcare law deadlines.  As the company notes, “The standard contained in the federal legislation requires insurers not to rescind policies except in cases of fraud or intentional misrepresentation of material fact.”


UnitedHealth Posts Strong 1Q10 Profits — Or Open Season on Health Plans, Part II

April 23, 2010

Carl McDonald of Oppenheimer hit on the irony of UnitedHealth Group’s strong first-quarter 2010 profits:

The Obama administration won the health care war, aided by big individual rate increases from WellPoint and other plans; UNH is now giving Democrats a reason to drag managed care bodies through the streets with its massive upside versus consensus in 1Q and higher guidance for the year, driven by a very favorable spread between pricing and cost trends. To the ruling class in Washington, though, this just looks like another example of an insurance company gouging its customers and it serves as a powerful reminder to some of why strict regulation of premium rates and medical loss ratios is required.

McDonald also raises another interesting point:

In a non-reform environment, we’d be a huge supporter of managed care stocks, because the industry appears to be on the verge of a cyclical upswing in margins, driven by higher premium rate increases and lower utilization.

What he’s saying is that the insurance underwriting cycle is turning up, as I’ve argued before (here and here) — and that means a run of strong profit performance for the industry at least before the full impact of reform kicks in.  All of which spells political trouble for health plans at a critical moment.  Or as I wrote last year:

It will be difficult to remember that managed care is a struggling industry when the underwriting cycle turns up, boosting industry profits.  That’s especially true as the up-cycle will likely gain momentum coincident with rollout of the initial elements of reform — masking longer-term challenges such as the erosion of the industry’s lucrative fully funded business lines.


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