Wellpoint Unit Faces Refund Demand - Analyst Blog
November 11 2011 - 6:00AM
Zacks
Yesterday, the governor of New York ordered Empire Blue Cross
Blue Shield, a unit of WellPoint Inc. (WLP),
to refund $61.1 million for alleged overcharging of premiums in
2010. Apart from WellPoint’s unit, Aetna Inc.
(AET) and nine other health insurance companies were also asked for
refunds.
The
aggregate refunds demanded amounted to $114.5 million, of which
WellPoint's share happens to be the highest. The second largest
amount of $21.4 million was demanded from Excellus, which is a
non-profit Blue Cross Blue Shield plan, while the third-largest
amount of $11.5 million is to be paid by Aetna.
The refunds
are related to policies covering around 574,000 people, mostly in
the large group market. As declared by the governor, the refund
mandate was a warning to insurance companies that the state is
keeping a tab on their actions and any wrongdoings will not be
accepted.
However, the
companies claim that changed regulatory requirements were
responsible for the overcharge. The New York Health Plan
Association said that the state announced the refunds on the basis
of the rates filed in 2009 for 2010. However, the state changed the
requirements after that, leading to the discrepancy.
As per the
new rules, insurance companies are required to spend 82% of their
premium revenue on medical care. In case they are unable to do so,
they need to refund the balance to the policyholders.
Nevertheless, the refund is
not expected to significantly effect WellPoint’s financial position
as the company has a strong balance sheet with cash and cash
equivalents of $2.5 billion as on September 30, 2011. The company
reported a 1.7% year-over-year growth in operating income to $1.77
per share in the third quarter of 2011, striding ahead of the Zacks
Consensus Estimate of $1.69.
Currently, the Zacks Consensus Estimate for WellPoint’s
fourth-quarter earnings stands at $1.11, down about 16.5%
year-over-year. Of the 19 firms covering the stock, 3 revised their
estimates upward, while 12 downward revisions were witnessed in the
last 30 days.
For 2011, Zacks Consensus Estimate earnings are expected to be
$7.07 per share, climbing about 5% year-over-year. The company
carries a Zacks #2 Rank, implying a short term Buy rating, with a
slight upward pressure over the near term.
On Wednesday, the shares of WellPoint closed at $68.57, up
2.40%, on the New York Stock Exchange.
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