Big Flap Over Anthem’s California Individual Market Increase
Below is the fully year earnings statement from Anthem for their US business. They had net income full year 2009 of $4.7 billion. At year end, their medical membership was 33.7 million. Dividing 33.7m into 4.7b you get approximately $139.47 net income per member. It did do some things with its revenues, like share repurchases, but it also sold its pharmacy (NetRx) business. So while a 39% year over year increase in premiums is painful to the receipients, are their profits unreasonable?
|WellPoint Reports Fourth Quarter and Full Year 2009 Results|
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WellPoint, Inc. (NYSE: WLP) today announced that fourth quarter 2009 net income was $2.7 billion, or $5.95 per share. The results included net after-tax income of approximately $2.2 billion, or $4.79 per share, resulting from a gain on the sale of the NextRx pharmacy benefit management subsidiaries (“NextRx”), partially offset by costs for restructuring activities and intangible asset impairments. Excluding these items, adjusted net income for the quarter totaled $536.0 million, or $1.16 per share (see page 14).
Net income in the fourth quarter of 2008 was $331.4 million, or $0.65 per share, which included net investment losses of $350.5 million after-tax, or $0.69 per share. Excluding the net investment losses, fourth quarter 2008 adjusted net income was $681.9 million, or $1.34 per share (see page 14).
For the full year of 2009, net income totaled $4.7 billion, or $9.88 per share. The results included net after-tax income of approximately $1.8 billion, or $3.79 per share, resulting from the gain on the sale of NextRx, partially offset by net investment losses and costs for restructuring activities and intangible asset impairments. Excluding these items, full year 2009 adjusted net income was $2.9 billion, or $6.09 per share (see page 14).
Net income for the full year of 2008 was $2.5 billion, or $4.76 per share. The results included net after-tax charges of $377.4 million, or $0.72 per share, resulting from net investment losses and intangible asset impairments, partially offset by the favorable resolution of a tax matter. Excluding these items, adjusted net income was $2.9 billion in 2008, or $5.48 per share (see page 14).
“We performed well during 2009 in a challenging environment. Despite the impact of the recession on our Commercial enrollment levels and medical cost trends, earnings per share increased as we significantly improved results in the Consumer segment, controlled administrative costs and implemented successful capital management initiatives,” said Angela F. Braly, president and chief executive officer. “We are off to a good start in 2010, with more than 400,000 net new National Account members effective January 1. Throughout the year, we will be making important investments in our businesses to create the best health care value for our customers and capitalize on opportunities to drive future growth.”
“WellPoint is in a strong financial position as of year-end 2009. Our insurance subsidiaries remain well-capitalized and we continue to generate substantial operating cash flow. We intend to utilize our capital to enhance customer and shareholder value,” said Wayne S. DeVeydt, executive vice president and chief financial officer. “We continue to maintain a strong and conservative balance sheet, and are comfortable with our outlook for earnings per share of at least $6.00 in 2010.”
Membership: Medical enrollment was approximately 33.7 million members at December 31, 2009, a decrease of 1.4 million members, or 3.9 percent, from approximately 35.0 million at December 31, 2008. The decline in membership was most significant in the Local Group business, which experienced a 989,000 member reduction during the year, primarily due to lapses and in-group enrollment losses resulting from the recession and rise in unemployment. Enrollment in State Sponsored business declined by 259,000 members, as the Company withdrew from certain programs for which actuarially-sound reimbursement could not be obtained. Membership in the Company’s Individual and Senior businesses declined by 141,000 and 89,000, respectively, while enrollment in the National business grew by 101,000 members.
Medical membership declined by 185,000, or 0.5 percent, in the fourth quarter of 2009. The decline occurred almost entirely in the Commercial segment, where the Company experienced net negative in-group change of 180,000 members resulting from workforce reductions among employer-based customers. While membership declined in the quarter, Commercial fully insured enrollment at December 31, 2009, was approximately 100,000 members higher than previously anticipated.
Operating Revenue: Operating revenue was approximately $15.1 billion in the fourth quarter of 2009, a decrease of 2.4 percent from $15.4 billion in the fourth quarter of 2008. The revenue decline primarily resulted from lower fully insured enrollment in 2009, partially offset by premium rate increases.
Benefit Expense Ratio: The benefit expense ratio was 84.8 percent in the fourth quarter of 2009, an increase of 140 basis points from 83.4 percent in the fourth quarter of 2008. The increase was driven primarily by higher medical cost trends in the Local Group business during 2009, due to elevated flu activity and the impact of the recession on business mix shifts, including higher COBRA(1) enrollment. The increase in the Local Group benefit expense ratio was partially offset by operating improvements that resulted in lower benefit expense ratios in the Senior and State Sponsored businesses. The Company recognized an estimated $50 million of higher-than-anticipated favorable reserve releases that were not reestablished during the fourth quarter of 2009.
(1) COBRA is named for the Consolidated Omnibus Budget Reconciliation Act of 1986, which provides unemployed group members with coverage for up to 18 months after losing their job.
Premium and Cost Trends: Trends represent Local Group fully insured business.
For the full year of 2009, underlying medical cost trend was 8.9 percent. Unit cost increases were the primary driver of medical cost trend, however utilization rose during 2009 due to business mix shifts, including increased COBRAmembership, and elevated flu activity.
The Company continues to price its business so that expected premium yield exceeds total cost trend, where total cost trend includes medical costs and selling, general and administrative (“SG&A”) expense.
Days in Claims Payable: Days in Claims Payable (“DCP”) as of December 31, 2009, was 42.3 days, a decrease of 4.1 days from 46.4 days as of September 30, 2009. Approximately 1.6 days of the reduction related to favorable prior period reserve releases that were not reestablished at December 31, 2009, as well as faster claims payment cycles. The closing of the NextRx transaction resulted in accelerated payments of pharmacy claims and changes in the timing of these payments, reducing DCP by another 1.5 days in the quarter. The remaining decline of 1.0 day resulted primarily from medical benefit seasonality in the Commercial and Individual businesses, which experience higher benefit expense ratios in the fourth quarter.
SG&A Expense Ratio: The SG&A expense ratio was 17.0 percent in the fourth quarter of 2009, an increase of 190 basis points from 15.1 percent in the fourth quarter of 2008. The increase was driven primarily by costs associated with restructuring activities that are projected to drive greater efficiency and effectiveness in future periods. The Company recognized a pre-tax restructuring charge totaling $171.6 million in the fourth quarter of 2009.
Gain on Sale of Business: On December 1, 2009, the Company completed the sale of NextRx to Express Scripts, Inc. The Company received consideration of $4.7 billion and recognized a pre-tax gain on the sale totaling $3.8 billion in the fourth quarter of 2009.
Impairment of Goodwill and Other Intangible Assets: In connection with the Company’s UniCare subsidiaries exiting the commercial health insurance markets in Illinois and Texas at year-end 2009 and the December 2009 closing of the NextRx sale, the Company initiated an impairment review of Goodwill associated with its UniCare subsidiaries during the fourth quarter and also updated a previous impairment review of the UniCare trade name. These reviews resulted in a pre-tax impairment charge of $57.0 million in the fourth quarter of 2009 to adjust the carrying values of the Goodwill and intangible assets to their estimated fair values.
Operating Cash Flow: Operating cash flow for the full year 2009, exceeded $3.0 billion, or 1.0 times adjusted net income. Operating cash flow for full year 2008 totaled $2.5 billion, or approximately 0.9 times adjusted net income.
Share Repurchase Program: During the fourth quarter of 2009, the Company repurchased 16.5 million shares of its common stock for $827.0 million. For the full year of 2009, the Company repurchased 57.3 million shares of its common stock for $2.6 billion. As of December 31, 2009, the Company’s remaining Board-approved share repurchase authorization totaled $383.8 million. On January 26, 2010, the Board of Directors increased the share repurchase authorization by $3.5 billion, and the Company will continue to evaluate future share repurchase activity subject to market and industry conditions.
Investment Portfolio & Capital Position: During the fourth quarter of 2009, the Company recorded net investment losses of $4.5 million pre-tax, consisting of other-than-temporary impairments totaling $40.5 million, primarily offset by net realized gains from the sales of securities totaling $36.0 million. As of December 31, 2009, the Company’s net unrealized gain position was $711.9 million, consisting of net unrealized gains on fixed maturity and equity securities totaling $501.2 million and $210.7 million, respectively.
As of December 31, 2009, statutory capital levels in the Company’s insurance subsidiaries exceeded state regulatory levels by approximately $5.5 billion and Blue Cross and Blue Shield Association requirements by approximately $2.5 billion. Cash and investments at the parent company totaled $4.5 billion.