(Reuters) - WellPoint Inc’s WLP.N quarterly profit missed Wall Street’s estimate and the health insurer cut its full-year profit forecast on rising medical costs and lower membership, sending its shares and those of rivals down sharply.
WellPoint executives said they were refusing to cut prices that could hurt profit margins in the face of tougher competitive pressure among health plans, leading to declining enrollment.
“We are disappointed with the need to lower our guidance, but believe it is the right action to take, given the challenging marketplace we see,” Chief Executive Officer Angela Braly told analysts on a conference call.
Shares of WellPoint, the second-largest U.S. health insurer by market value, tumbled as much as 12.4 percent to $53.82, the lowest point since late 2010. Shares of rivals UnitedHealth Group Inc (UNH.N) and Aetna Inc (AET.N) were down about 6 percent and 5 percent, respectively, in morning trading.
Several analysts said it was particularly discouraging that WellPoint was cutting its forecast only after backing it a couple weeks ago, when it announced its $4.5 billion acquisition of Medicaid specialist Amerigroup Inc AGP.N.
WellPoint’s second-quarter net income fell to $643.6 million, or $1.94 per share, from $701.6 million or $1.89 per share a year earlier, when the company had more outstanding stock.
Excluding items, WellPoint reported earnings of $2.04 per share, 4 cents below analysts’ average estimate, according to Thomson Reuters I/B/E/S.
Revenue rose 2 percent to $15.17 billion, about $100 million below analyst estimates.
WellPoint said it saw an increase in use of medical services during the quarter, stemming from an increase in physician office visits.
Americans’ low use of healthcare services has proved to be a boon for health insurers over the past two years by reducing their medical claim costs and increasing profit. But investors have been bracing for utilization to start rising again.
“While other insurers have noted a rise in outpatient visits this year, WellPoint’s lowered guidance suggests the problem is more acute for it relative to guidance,” Wells Fargo analyst Peter Costa said in a research note.
Larger rival UnitedHealth last week also highlighted tough competition among health plans, as well as a challenging climate for Medicare and Medicaid reimbursement. The executives’ comments sent UnitedHealth’s shares down, even though the insurer reported a higher-than-expected profit and slightly raised its forecast.
WellPoint’s latest setbacks come after other recent struggles for the company involving high costs for its Medicare plans for seniors that led to weaker results.
WellPoint forecast 2012 earnings per share in a range of $7.30 to $7.40. That amounts to a reduction of at least 25 to 35 cents from its April forecast of at least $7.65 per share, excluding items. Analysts have been looking for $7.76.
The company’s enrollment totaled 33.5 million at the end of June, down about 1.9 percent from a year earlier. It projects year-end enrollment of about 33.4 million, down about 200,000 members from its prior view.
Leerink Swann analyst Jason Gurda said the changes to enrollment and cost trend estimates “appear fairly modest and suggest to us that WellPoint’s full-year guidance may not have been particularly conservative to begin with.”
The new profit forecast includes about 15 cents per share in costs related to financing the Amerigroup deal, which is a major bet on the expansion of private industry’s role in the Medicaid U.S. government health plan for poor Americans.
It comes on the heels of the U.S. Supreme Court’s decision to uphold President Barack Obama’s healthcare law, which is set to expand Medicaid eligibility by about 16 million people largely by raising income limits for the program.
WellPoint is the second health insurer to post results since the court upheld the law in late June. Large health insurance shares have fallen since the decision on the legislation, which tightens regulations and adds new fees on the industry while also potentially paving the way for millions of new customers by expanding coverage to the uninsured.
WellPoint shares were off 12.1 percent at $54.00 at midmorning on Thursday on the New York Stock Exchange. Through Tuesday, WellPoint shares had fallen about 7 percent this year, underperforming a 1 percent decline for the Standard & Poor’s Managed Health Care index of large insurers .GSPHMO.
Reporting by Lewis Krauskopf in New York; Editing by Lisa Von Ahn, Gerald E. McCormick, Maureen Bavdek and Matthew Lewis