Q: Can I expect improvement in my shares of WellPoint Inc.?
M.R., via the Internet
A: The nation’s largest health insurer, with 34.8 million members, is suffering from higher costs, lagging enrollment and worsening economic conditions.
More tough medicine:
*It faces a premium reduction in California’s Medi-Cal program starting July 1.
*It is leaving the Ohio Covered Families & Children’s Medicaid program because it was unable to obtain rates it considered fiscally sound.
*New York Atty. Gen. Andrew Cuomo issued subpoenas to WellPoint and 15 other insurers in his investigation of possible consumer fraud. When WellPoint recently reduced its 2008 earnings outlook, all health-care stocks took a turn for the worse.
Shares of WellPoint (WLP) are down 51 percent this year, following a gain of 11 percent last year.
Fitch Ratings reduced its outlook on the insurer to negative from stable because earnings before interest, taxes, depreciation and amortization are likely to decline significantly and weaken financial stability.
Standard & Poor’s kept its rating at stable, saying the reduced profit outlook didn’t alter its opinion on the firm’s operating performance. But it said it will revise to negative if operating performance deteriorates.
WellPoint still has a solid advantage as the largest licensee of Blue Cross Blue Shield, serving 14 states. WellPoint also acquired WellChoice in 2005 to gain a strong presence in New York and in national accounts.
It has a broad line of products that includes not only risk-based health insurance, but administrative services and specialty products such as vision, dental, prescription drugs and behavioral health coverage. It has a strong balance sheet and one of the lowest medical loss ratios in the industry.
Earnings are expected to increase 5 percent this year compared with the 13 percent projected for the health-care-plan industry. Next year’s rise is estimated at 13 percent versus 15 percent industrywide. The projected five-year annualized growth rate of 15 percent compares with 14 percent by its peers.
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Andrew Leckey is a Tribune Media Services columnist. E-mail him at yourmoney @tribune.com.