After the first open enrollment period, WellPoint executives are confident that public exchanges will be profitable and that they won't be bailing anybody out. Other areas, they're not so sure about, despite better than expected first quarter results.
WellPoint, the parent company of Blue Cross-licensed plans in 14 states, posted net income of $701.0 million, or $2.40 per share, in this year's first quarter on revenue of $17.6 billion.
That $701 million is actually about 20 percent less than first quarter 2013's net income -- $885 million -- but it's "better than expected," CEO Joseph Swedish said in a media release.
"Our membership is growing across our platforms and we are pleased with the progress we have seen in the exchanges. Provider collaboration remains a focus for us and we are working closely with all types of healthcare providers to drive value for consumers," said Swedish, now more than a year into the CEO role at WellPoint after spending several decades at providers, most recently Trinity Health.
The first quarter results, with the $17.6 billion in revenue growing by 1.2 percent and the 82.7 percent combined medical loss ratio improving by 1 percent, are enough for the company to raise its outlook for the year by $0.20 per share, to $8.40.
WellPoint increased its membership by 1.3 million lives to 36.9 million as of March 31, all but 137,000 of them in commercial segments, including more than 600,000 in public exchanges.
"We're very pleased with the mix of business," Swedish said in a conference call. "Our margins within our markets vary, but in total they're still within our target range of three to five percent."
There are "a few markets where we might book a payable," Swedish said, referring to the reinsurance, risk adjustment and risk corridor programs. But as CFO Wayne S. DeVeyd said, the amounts they're expecting as payable are "so diminimous it will bail nobody out."
The demographic mix they're seeing among new members is also looking positive, DeVeyd said. As open enrollment drew to a close on April 15, "We saw in each day's applications the average age coming down in meaningful fashion."
About 90 percent of new exchange members have paid their premiums, although, aside from age, the company is still learning about their history. DeVeyd said Anthem and other WellPoint insurers don't yet know if new members were previously insured.
In addition to new exchange members, "We're bullish on our outlook for Medicaid and duals and Medicare in the long-term," DeVeyd said, but one concern looms large over the rest of the year, the new hepatitis C drug Sovaldi.
In the first quarter, WellPoint plans spent $50 million on Sovaldi, and the company is budgeting at least $100 million in full-year costs for the breakthrough drug.
About 40 percent of that $50 million was spent on commercial members, 25 percent on Medicare Advantage-covered seniors and 35 percent on Medicaid managed care beneficiaries. "This does match our revenue mix, adjusting for Medicare portion that is paid by CMS," Swedish said.
"Really hep C is the biggest issue right now," DeVeyd said. "It's one area where we feel we have a responsibility as an industry to help control costs for the consumers."
In other news, WellPoint has rounded out its executive management team with two new hires.
The company's interim general counsel Thomas Zielinski, a former partner in the law firm of Morgan Lewis, will officially take over the chief legal spot as an EVP effective June 2. Peter Haytaian, who came to WellPoint when it acquired Amerigroup, has been appointed EVP and president of the government business, overseeing Medicaid, Medicare and federal employees contracts.
Other recent hires include a new chief strategy officer, Martin Silverstein, MD, an internist, value-based care guro and 25-year veteran of the Boston Consulting Group, and a new CIO, Thomas Miller, who has ran much of Coca Cola's IT for the past two decades.