What this underlines, beyond WellPoint's own strategy, is a widening divergence between the percentages of small and large employers that offer insurance to their workers. In 2009, less than half of firms with 3 to 9 employees offered coverage, compared to 72 percent of companies with 10 to 24 workers, 87 percent of those with 25 to 49 workers, and 95 percent of those with 50 or more employees.
For the fourth quarter of 2009, WellPoint reported net income of $2.7 billion, compared to $331.4 million for the year-earlier period. The 2009 fourth-quarter net included a $2.2 billion gain from the sale of NextRx, a pharmacy benefit manager. For the full year, WellPoint's net income totaled $4.7 billion, a huge jump from the $2.5 billion posted in 2008. After adjusting for the NextRx transaction and WellPoint's staggering investment losses in 2008, however, the company earned $2.9 billion in "adjusted net income" in both years.
Premium increases and overhead cuts helped WellPoint keep its income level despite a drop in revenues. WellPoint's operating revenue fell 2.4 percent to $15.1 billion in the fourth quarter and 1.2 percent to $60.8 billion for the full year.
Notably, the fourth quarter operating gain in WellPoint's commercial business was only $316.8 million, 56 percent less than the $728.4 million gain for the prior-year period. The company attributed nearly a third of that drop to restructuring costs. The rest came from "an increase in the benefit expense ratio for Local Group [i.e., small-employer] business and lower fully insured enrollment in 2009. Commercial enrollment declined by 948,000, or 3.3 percent, during 2009, reflecting the rise in unemployment. The Local Group benefit expense ratio increased due to business mix changes, including higher COBRA membership, and elevated flu activity."
The COBRA burden resulted from the government's subsidies for COBRA plans purchased by newly laid-off workers. Many of those people were sicker than average, so they cost WellPoint more.
The operating gain in the Consumer Business (i.e., individually purchased plans) declined 32.6 percent to $158.9 million in the fourth quarter. But for the full year, the operating gain in the individual insurance sector leaped 119 percent to $1.28 billion. By comparison, the full-year operating gain for the commercial business fell 28.4 percent to $2.43 billion.
Also revealing are the changes in membership by category. While small-business-covered, individually insured, and government-insured members declined from 2008 to 2009, the membership in "national accounts" (i.e., large companies) slightly increased. And, as the number of people in fully insured plans dropped substantially, the number in self-insured plans stayed flat. Most companies that insure themselves are not small.
To the extent that WellPoint is representative of other insurance companies, what this all suggests is that, as insurance costs continue rising, big, self-insured employers will continue to offer coverage longer than small firms. And because there's more profit for the carriers in administrating large, self-insured plans, they will continue to gravitate toward them as the business environment deteriorates.