Business was good for WellPoint
But this year's earnings party just got quite a bit smaller for WellPoint, which is now looking for EPS growth of just 4% to 8%.
WellPoint blames the lowered earnings on the increase in medical costs that it has seen in the first two months of the year. It should have seen this trend coming, but at least WellPoint announced it now and didn't wait until it released first-quarter results to give investors the bad news.
Not only are medical costs up, but not as many people are paying for WellPoint's more lucrative insurance offerings. The company added 410,000 members since the beginning of the year, but the subset that took on full insurance was lower than what it was looking for. Specifically, declines in the small group and individual plans lead WellPoint to think that it'll be harder to gain members during the rest of 2008.
Lower membership growth and higher costs are not good news for WellPoint. The big question: Is this an industrywide trend? Aetna
WellPoint's incorrect guess on health-care costs might be specific to the company, but its prediction that members will be fewer in a recession is likely to be an industrywide issue. My guess is that the large insurers, such as UnitedHealth Group
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