WellPoint pushes stock prices up, but not profits, by raising premiums

Five months ago, Angela Braly, the CEO of health plan giant WellPoint, told investors that the plan could turn around falling profits by raising premiums and squeezing providers harder on fees. (OK, she didn't say "squeeze," but that was the idea.) At the time, Braly was struggling to calm Wall Street after missing its first-quarter profit estimates by a wide margin. Your editor suggested that this just wasn't going to happen the way she described, since raising premiums in the current environment can make a lot of enemies.

Well, Ms. Braly, my apologies for being so skeptical--you've delivered on at least part of what you promised. Since that conference call, Braly has indeed overseen some premium hikes--in some cases fairly substantial ones. Unfortunately, the rest of the plan hasn't gone as hoped. According to the Wall Street Journal, WellPoint has lost a substantial 189,000 members in its individual and business plans, and expects to shed 150,000 more members by December. Some of these defections were from customers who'd bought an allegedly cheaper high-deductible plan, only to find that premiums for some jumped 30 percent or more.

Worse, despite having taken such a beating to please investors--who've rewarded WellPoint by boosting its share price back to better levels--the price is still off by about 40 percent this year. Now, WellPoint is really against the wall since it appears that it simply can't please both investors and employers. The fourth quarter of this year could be a bloodbath if WellPoint doesn't find a way to squeeze savings out of internal operations rather than expanding prices to its customers (which are, of course, what premiums are). 

Now, the company is working to both get a better handle on medical costs and speed the consolidation of old claims-processing systems with newer technology. The process, execs say, created some information backlogs that led to artificially low premiums they're now correcting. Hmm...good luck selling that one, folks.

To learn more about WellPoint's struggles:
- read this Wall Street Journal piece (sub. req.)

Related Articles:
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