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WellPoint Inc.'s fourth-quarter earnings jumped 38 percent compared to the final quarter of 2011, when the nation's second largest health insurer incurred a big hit from its Medicare Advantage business.
But the Blue Cross Blue Shield insurer gave analysts on Wednesday a conservative forecast for 2013, due in part to a daunting list of expenses it could face.
WellPoint will spend roughly $300 million this year preparing for coverage expansions under the health care overhaul coverage and changes to its Medicare Advantage business.
The overhaul aims to help millions of people buy health care coverage, and it will take a big step toward that goal this fall, when state-based insurance exchanges begin operating to sell policies on the individual market and to people with coverage through a small employer. Income-based tax credits are expected to help many people buy coverage.
WellPoint and other insurers are preparing to sell policies on those exchanges and, in some cases, to keep business they could lose once their customers have the option of an exchange. Currently, it can be difficult for individual insurance customers to switch insurers, especially if they have a costly medical condition.
The insurer also expects to spend as much as $125 million integrating recently acquired Amerigroup Corp. into its business, and it says it could take hits from flu claims, possible cuts to Medicare funding and an increase in health care use.
Counting those expenses, WellPoint expects to earn at least $7.60 per share in 2013, compared to the $8.18 per share it earned last year.
Analysts forecast, on average, earnings of $7.94 per share, according to FactSet.
Interim CEO John Cannon told analysts that company leaders were pleased with WellPoint's performance over the last six months, but they wanted to keep an "appropriately prudent stance" regarding the new year due to the additional costs. He expects WellPoint's adjusted earnings to grow at a modest pace next year, not counting one-time items like investment income and some of the expenses.
The Indianapolis company earned $464.2 million, or $1.51 per share, in the three months that ended Dec. 31. That's up from $335.3 million, or 96 cents per share, in the last quarter of 2011, when it had more shares outstanding.
The insurer's bottom line was helped, in part, by $243 million in investment gains and an income tax settlement.
Excluding those gains and other adjustments, earnings totaled $1.03 per share. Operating revenue, which excludes investment gains, inched up less than 1 percent to $15.27 billion.
Analysts expected, on average, earnings of 94 cents per share on $15.29 billion in revenue. Analysts typically exclude investment gains from their estimates.
In the final quarter of 2011, WellPoint took a $50 million hit from its Medicare Advantage business, which involves privately run versions of the government's Medicare program that covers the elderly and disabled people. It reported no such problem in the most recent fourth quarter, but the insurer did say it saw a decline in its Medicare and Medicaid-related business.
WellPoint's membership grew more than 5 percent to 36.1 million people compared to the 2011 quarter, largely due to its recently completed, $4.46 billion acquisition of Medicaid coverage provider Amerigroup Corp. Medicaid is the state-federal program that provides health coverage for the needy and disabled people.
WellPoint is the nation's second-largest insurer, trailing only UnitedHealth Group Inc. The company is still searching for a new leader following Angela Braly's departure last August. Cannon told analysts WellPoint's board is moving as quickly as possible, and they expect to reach a decision in this quarter.
WellPoint shares rose $1.03, or 1.6 percent, to close at $64.83 Wednesday. The company's stock dropped 8 percent in 2012 but has risen about 6 percent so far this year.