Healthcare Business

Could Obamacare Be Working?

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Source: Thinkstock
Health insurer WellPoint Inc. (NYSE: WLP) raised its earnings outlook for the 2014 fiscal year Friday morning, based on an estimate that the company will add 1 million to 1.3 million new members to its rolls. The company had previously forecast earnings per share of “greater than $8.00” and raised that estimate to “greater than $8.20.” The new estimate is moving closer to the current consensus estimate of $8.38.

The company’s CEO said:

We are building on the positive operating momentum we’ve achieved across the organization over the last year. While it is early in 2014, we are encouraged by results thus far across our businesses and we believe Exchanges are tracking our general expectations. … Our updated outlook reflects solid growth in membership, revenue and operating earnings. Our outlook also remains prudent in light of the dynamic nature of the marketplace, and we believe this is a point from which we will grow in the future.

The “exchanges” he refers to are the state marketplaces that have been established as part of the Affordable Care Act, aka Obamacare. WellPoint notes that changes in the benefit expense ratio, SG&A expense ratio and effective tax rate will be “driven predominantly by the introduction of the ACA insurer fee in 2014.”

The insurer fee is a non-deductible fee insurance companies pay to help fund the law and expand benefits to the uninsured and the poor. However, that tax must be paid by the state and federal governments through higher reimbursements to insurers. Thus, the more enrollees, the higher the reimbursement and the more beneficial impact on insurers’ top and bottom lines.

Some will argue that governments that are essentially paying taxes to themselves have lost their minds. But a major goal of Obamacare is to provide affordable insurance to those who have been uninsured and thus to reduce medical costs overall. The insurer tax does that by encouraging insurers to sign up more members, and rewarding them for doing so. The jury is still out on whether overall costs will fall but, in theory, that is what is supposed to happen.

WellPoint’s shares traded about 0.7% higher Friday morning, at $99.75 in a 52-week range of $63.31 to $100.59.