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How to exceed expectations and please Wall Street, health-insurance parasite style

a little night musing's picture

Last week Wellpoint (the parent company of my own adopted parasite, Empire Blue Cross Blue Shield) posted a first quarter net income which had gone down from the previous quarter, but not so much of a decline as Wall Street had expected.

WellPoint Inc.'s (WLP) first-quarter net income fell 1.3% Wednesday on sharply higher investment losses and amid continued enrollment declines, but the health insurer's strong operating performance offers further encouragement for the pressured industry.

I'm so relieved!

Excluding the investment losses, the largest managed-care company by membership reported operating earnings that easily surpassed analyst expectations, thanks in part to a better handle on medical costs.

A better handle on medical costs - are you thinking what I'm thinking?

Notably, WellPoint's medical cost ratio - the percentage of premium revenue used to pay patient bills, a key indicator of profitability - fell 3.5 percentage points to 81.6% amid disciplined pricing and operating improvements in senior and local group businesses and more favorable prior-period claims development.

OK, just stop and ponder that for a moment. Their profitability increased because a smaller percentage of the money they took in from premiums was spent on actual health care.

They could, of course, have decreased the percentage that they spent on administrative overhead. (Yes, I know, I'm a dreamer!)

Or, assuming arguendo that they decreased the percentage spent on patient bills by decreasing those pesky unnecessary procedures we keep hearing about* - couldn't that savings, in my dream world, have translated into lower premiums? No? Oh, well...

WellPoint's report comes a day after UnitedHealth, the largest managed-care player by revenue, also posted first-quarter earnings that significantly exceeded Street expectations.

Well, good then!

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I submit to you - More proof, if any is needed, that we need to get the publicly traded insurance companies, with their eyes on Wall Street and their stock performance, out of the health care delivery business.
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* edited to add: I have tried, and failed, to understand or find out what "disciplined pricing and operating improvements in senior and local group businesses and more favorable prior-period claims development" means. I'm especially curious about that "more favorable prior-period claims development" part. Sounds suspiciously like not paying old claims, to me. But you know how I am...

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Submitted by hipparchia on

i think that puts them a few pennies above the industry average, which last i remember seeing was right at 81%. golly, and you're so unappreciative.

fwiw, i went a-googling to see if i could verify that 81% [since i'm quoting it from memory, possibly faulty] and found this q&a from sick around america.

from a random financial statement i found on the web:

Loss reserves are estimates and are inherently uncertain; they do not and cannot represent an exact measure of ultimate liability. Accordingly, as we receive new information and update our assumptions over time regarding the ultimate liability, our loss reserves may prove to be inadequate to cover our actual losses or they may prove to exceed the ultimate amount of our actual losses. The amount by which estimated losses, measured subsequently by reference to payments and additional estimates, differ from those originally reported for a period is known as "development." Development is favorable when losses ultimately settle for less than the amount reserved or subsequent estimates indicate a basis for reducing loss reserves on open claims. Development is unfavorable when losses ultimately settle for more than the levels at which they were reserved or subsequent estimates indicate a basis for reserve increases on open claims. Favorable or unfavorable development of loss reserves is reflected in our Consolidated Statements of Operations in the period in which the change is made.

it would appear that "favorable claims development" means that they didn't have to pay out as much in 'medical losses' as they thought they were going to have to. it's too bad they can't be required to disclose why their claims developments are favorable [as in people magickally got well! or yeah, we decided not to pay for any liver transplants last quarter, so phbbbt!].

nifty little factoid: when i googled "prior-period claims development" your post was at the top of the list.

"disciplined pricing" seems to be "tweak your price to squeeze another few drops of blood out of your customer".