Investors pushed WellPoint shares closer to their all-time high price on Wednesday after the company raised its 2014 forecast again and became the latest health insurer to ease some worry about a key health care overhaul coverage expansion.
The Blue Cross Blue Shield insurer estimates that it will add more than 600,000 customers through state-based public insurance exchanges that started accepting enrolment last fall, and it said it still expects to make money from that business.
The federal overhaul set up these exchanges to help millions of people buy coverage, many with help from income-based tax credits. But their debut last fall was marred by problems with a main conduit — the HealthCare.gov website — that stunted enrolment at first and left many exchange customers frustrated.
Investors are worried that those problems would hurt insurers because only older and sick people, or those who planned to use their coverage, would persist through all the trouble to sign up. Insurers need to balance those customers with younger and healthier people who don’t use their coverage as much to keep premiums in check.
WellPoint officials said Wednesday they saw a “substantial” surge in applications toward the end of the open enrolment period for these exchanges that lowered the average age of the applicants.
“Applications especially near the end of the quarter were robust,” WellPoint CEO Joseph Swedish told analysts during a Wednesday morning conference call.
Indianapolis-based WellPoint, the nation’s second largest health insurer, is selling coverage in 14 states where it already markets Blue Cross Blue Shield products and is relying on that well-known brand to help its business.
These exchanges represent a small slice of business for WellPoint and other major health insurers. Analysts and investors never expected them to be a big source of earnings growth. But they worried that this coverage would hurt overall results.
“The early signs are clearly very positive,” BMO Capital Markets analyst Jennifer Lynch said, adding that it is still too early to get a good feel for how this exchange business ultimately pans out.
Insurers generally need at least a full quarter of claims data before investors can tell whether they’ve priced their coverage correctly to cover their claims.
Swedish also told analysts that about 90 per cent of the people who signed up for coverage through the exchanges paid their first month’s premium. That provides another bit of reassurance to investors, who are wondering whether overhaul enrolment totals were inflated by people who never wound up paying.
Last week, Hartford, Conn.-based Aetna Inc., the nation’s third-largest insurer, said about 80 per cent of its exchange customers followed through with a premium payment. It expects to add about 450,000 paying customers through the exchanges, and company officials said the risk of that business appeared manageable so far.
In WellPoint’s case, the insurer started to ease investor worries about exchanges last month when it raised its 2014 earnings forecast, said Thomas Carroll, a managing director for the investment bank Stifel who follows the industry.
The insurer’s stock set an all-time high price of $102.56 the day it announced that higher forecast. The shares then retreated, but they rallied Wednesday after WellPoint raised its 2014 forecast again and also reported first-quarter results that beat Wall Street expectations.
Wellpoint stock was up nearly 5 per cent, or $4.74, to $100.13 in afternoon trading Wednesday while the Standard & Poor’s 500 index was flat.