INDIANAPOLIS (AP) — WellPoint Inc. said a drop in expenses helped raise its first-quarter net income nearly 6 percent, as it became the third big health insurer in the past week to beat analyst expectations and raise its 2011 earnings forecast.
The Indianapolis company said Wednesday it received an enrollment boost from a health care overhaul provision that extends insurance coverage for adult children up to age 26, and it adjusted for another provision of the law expected to pinch profits.
"It was a very good quarter for us, and I think it shows folks that even in a post-reform environment, we can execute," Chief Financial Officer Wayne DeVeydt said.
The largest publicly traded health insurer based on enrollment earned $926.6 million, or $2.44 per share, in the three months that ended March 31. That's up from $876.8 million, or $1.96 per share, a year earlier.
Total revenue fell slightly to $14.89 billion for WellPoint, which operates Blue Cross Blue Shield plans in 14 states. Adjusted earnings, which exclude $36 million in investment gains, were $2.35 per share.
Analysts polled by FactSet forecast a profit of $1.89 per share on $14.65 billion in revenue.
WellPoint spent more than $700 million buying back stock in the quarter, which reduced the number of shares outstanding and helped increase earnings per share. It also spent about $93 million on its first cash dividend payment of 25 cents per share. The insurer announced the quarterly dividend in February.
WellPoint competitors Aetna Inc., UnitedHealth Group Inc. and Humana Inc. also have started new or improved dividend payments after stronger financial performances gave them a growing supply of cash to spend after stocking the reserves they need for claims.
WellPoint's enrollment grew 1 percent to 34.2 million compared to last year's first quarter. Much of that growth, or almost 280,000 lives, came from the overhaul coverage extension for young adults on their parents' policies.
But DeVeydt said this isn't necessarily a boon for insurers, in part because that relatively healthy population generates fewer claims. Insurers administering health plans for big accounts generate revenue from processing claims.
"It looks great from an enrollment perspective, but it really does nothing for you economically," he said.
The company's selling, general and administrative expenses fell 4.5 percent to $2.08 billion, and the total spent on medical claims fell 1.4 percent to $11.23 billion, as medical costs came in lower than it expected. WellPoint, like other insurers, said severe winter weather in many parts of the country kept claims down.
The insurer said its medical-loss ratio, which essentially measures the percentage of premiums spent on medical claims, climbed slightly to 82.1 percent in the quarter, partially because of a new health care overhaul requirement.
Insurers face a new rule this year that requires them to meet minimum ratios or issue rebates to consumers. Analysts expected WellPoint to be vulnerable to this because it has a large individual insurance enrollment, and the minimum for those plans is expected to be challenging. WellPoint didn't detail the effect of the new rule, but its medical-loss ratio, or MLR, wound up better than several analysts had expected.
DeVeydt said the insurer adjusted prices in markets where it expected rebates and reduced commissions to account for the rule.
Last week, UnitedHealth reported a 13 percent jump in first-quarter earnings, a performance that started easing investor concern about the rule's impact. On Tuesday, Humana said its first-quarter earnings per share will come in at $1.86, much higher than Wall Street expected. Both companies also raised their full-year profit forecasts.
WellPoint now expects 2011 earnings of at least $6.60 per share, excluding investment gains. That's up from $6.30 per share, a forecast analysts had labeled conservative. Analysts expect, on average, earnings of $6.62 per share this year.
Company shares climbed $1.81, or 2.5 percent to $74.78 in midday trading.