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Read Making a Killing

home / healthcare / in the media

The San Francisco Chronicle
Apr 28, 2005

by Victoria Colliver, Chronicle Staff Writer

WellPoint profit doubles from a year ago;

Quarterly rise follows merger with Anthem
WellPoint Inc., the parent of Blue Cross of California, more than doubled its first-quarter profit after a controversial merger that closed late last year.

The nation's largest health insurer, based in Indianapolis, reported that net income rose to $611.7 million ($1.97 per share) for the three months that ended March 31 from $295.6 million ($2.08) for the same period last year. Revenue soared to $11 billion from $4.5 million.

WellPoint was created when the Indianapolis insurer Anthem purchased the larger WellPoint Health Networks Inc. in Woodland Hills (Los Angeles County) for $16.5 billion and took its name. California was the last of 11 states and Puerto Rico to approve the takeover.

The merged company attributed much of its first-quarter gains to a membership increase of about 800,000 people. Membership grew to more than 28.5 million as of March 31. That represented an increase of 16 million from a year earlier, an influx due primarily to the addition of members of the old WellPoint.

The higher profit also reflected lower costs, the company said. WellPoint spent $25 million less for administration in the first quarter than it did in the same period last year, spokesman James Kappell said.

Some consumer groups said that WellPoint's profit is coming at the expense of members.

"Blue Cross patients have the right to be suspicious. At the same time premiums are increasing 20 to 50 percent, WellPoint's profits are going through the roof," said Jerry Flanagan, health policy director for the Foundation for Taxpayer and Consumer Rights. "All evidence points to Blue Cross reneging on its promise to California and passing on its merger expenses to patients."

State Insurance Commissioner John Garamendi initially opposed the WellPoint-Anthem deal, expressing concern that the company would raise premiums to cover merger expenses, including hefty payouts to departing executives. He approved the deal in November after the company promised that consumers would not pay for the merger and agreed to contribute money to support health care services in underserved California communities.

Both the state Department of Insurance and the Department of Managed Health Care have begun investigations into the acquisition after reports that rates have increased as much as 50 percent since January. The Department of Managed Health Care, which regulates health maintenance organizations, said Wednesday that it plans to hold a public hearing May 13 in Sacramento as part of its investigation.

Blue Cross spokesman Michael Chee confirmed that the company increased its rates effective March 1, but said the actions complied with WellPoint's agreement with state regulators. He said the increases were due to rising costs for care.

"Blue Cross has certified these rate increases are not related to costs associated with the merger of Blue Cross' parent company (with Anthem)," he said.

WellPoint's stock rose 5.44 percent Wednesday to close at $124.45 per share on the New York Stock Exchange. The company declared a two-for-one stock split.
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E-mail Victoria Colliver at vcolliver@sfchronicle.com


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