By Caroline Humer
(Reuters) - U.S. health insurer WellPoint Inc said on Wednesday the applicants for the new Obamacare health plans are of the age and demographics it had expected, indicating that medical costs will not soar beyond the prices it charges.
WellPoint, which released lower fourth-quarter results on Wednesday, said that based on age, insurance plan selection, income levels, gender and available pharmacy data, it believes it has set the right premium rates for these new customers.
Insurance plans under President Barack Obama's healthcare reform law went on sale October 1 and into effect on January 1.
Initial enrollment data nationwide has shown that the first wave of people who enrolled are older people who can be more expensive to insure because they often have more health problems than young people.
Shares in WellPoint rose about 3 percent, or $2.75, to $87.05 in morning trading after the comments. Competitor Aetna Inc shares rose 39 cents to $69.32 while UnitedHealth Group Inc gained 33 cents to $72.03.
"There was a concern that a lot of the firms that were involved in the exchanges would be underpriced for the demographic that would find the exchanges appealing, at least over the first year," Morningstar analyst Vishnu Lekraj said.
"What they said was that they priced everything appropriately given the data they have currently, in terms of medical cost utilization," Lekraj said.
WellPoint, one of the biggest players on the exchanges, said that it was still not certain about how enrollment, which is open until March 31, would finally end up, contributing to uncertainty about its 2014 earnings.
The company forecast earnings of above $8 per share in 2014, representing a likely drop from the $8.52 it earned in 2013 before special items. Analysts on average were expecting 2014 earnings to fall to $8.39 per share, according to Thomson Reuters I/B/E/S.
Chief Financial Officer Wayne DeVeydt said the 2014 outlook reflects about a $100 million negative effect of changes in government policy regarding the rollout of Obamacare. Late last year as political pressure mounted around technology problems on the exchanges and the higher premium rates on new plans, the Obama administration said that older individual plans could be renewed and it increased the number of people eligible for catastrophic coverage.
DeVeydt said ACA insurer fees, which are not tax deductible for insurers, would cost earnings $1.10 per share and that it would spend about $30 million on first-year exchange costs.
FOURTH-QUARTER PROFIT FALLS
WellPoint said fourth quarter profit fell as consumers increased their use of medical services ahead of the cancellation of some insurance plans at the end of 2013.
The company also took a charge for the recently announced sale of its contact lens business, 1-800 Contacts, to private equity firm Thomas H. Lee Partners, which caused a sharp decline in net profit.
WellPoint, which sells Empire and Anthem Blue Cross Blue Shield plans, also said its costs went up as it prepared for the rollout of Obamacare, and an expected increase of 1 million new members this year.
So far, about 3 million people have enrolled in exchange plans, according to the government. The Congressional Budget Office had forecast that about 7 million people would sign up for 2014 coverage.
Sign-ups are lagging targets because of technology problems in the first two months after the launch of the national website HealthCare.gov that sells insurance plans in 36 states. The other 14 states run their own sites.
WellPoint said it had received 500,000 applications for new individual health plans that went into effect January 1, most of them for exchange-based plans but some for plans it sells off the exchange. Income-based subsidies from the government are only available for exchange plans. It said most of these customers were new to WellPoint.
WellPoint said net profit for the fourth quarter fell to $148.2 million, or 49 cents per share, from $464 million, or $1.51 per share a year earlier. Excluding costs for the sale of 1-800 Contacts and investment gains, earnings fell to 87 cents per share from $1.03 per share, which also included investment gains and acquisition costs.
The quarterly earnings were in line with analyst expectations, according to Thomson Reuters I/B/E/S.
The company spent 87.8 percent of its premiums brought in on medical claims, up from 87.3 percent a year ago. It said that as old individual plans were being canceled ahead of the introduction of the new 2014 insurance, customers used more medical services.
Spending on medical procedures, doctor visits and hospitalizations has been at a historical low for the past several years. This has helped insurers keep these medical cost ratios down while still complying with the Affordable Care Act, which requires them to spend at least 80 percent of plan premiums on care or refund customers the difference.
WellPoint said it added 145,000 members during the quarter as it picked up small business customers and new enrollees in the California Medicaid program for the poor. It had 35.7 million members at the end of 2013.
(Reporting by Caroline Humer; Editing by Lisa Von Ahn and Rosalind Russell)