WellPoint faces biggest changes under new law

The health reform law enacted last week will have huge impact on all U.S. health insurers, but perhaps none more than Indianapolis-based
WellPoint Inc.

The law will, in 2014, transform markets in which individuals and small businesses buy health insurance. By purchasing insurance
through state-based exchanges, individuals and businesses with fewer than 50 workers would, hopefully, enter a larger pool
of people to share their risk and keep premiums under control.

WellPoint has more of those kinds of customers than its major competitors.

Also, health insurers could take no more than 15 percent out of small businesses’ premiums to cover profit and administrative
expenses. For individual policies, which have higher administrative costs, health insurers could take out as much as 20 percent
of premiums.

Most larger businesses don’t actually buy insurance. Instead, they act as insurer to their employees, and hire a company
like WellPoint to process claims and  give access to doctors and hospitals at discounted prices.

Such arrangements—which are called self-funded or administrative services only—will be far less impacted by the
new law. They right away will have to start covering dependents until age 26, and handle other administrative duties.

But those buying insurance directly, known as being fully insured, will see changes immediately and even more when the exchanges
start in 2014. For instance, a sick person no longer can be kicked off a plan, and in 2014, health insurers won’t be
able to a keep a sick person from joining a health plan.

WellPoint has more fully insured customers than its major competitors. Of the nearly 34 million whose health insurance is
handled by WellPoint, 33 percent are under fully insured coverage purchased by themselves or their employers.

Minnesota-based UnitedHealth Group and Connecticut-based Aetna Inc. have about 30 percent of their health plan members as
fully insured customers. At Louisville based Humana Inc. and Philadelphia-based Cigna Corp., fully insured customers accounted
for just 18 percent and 16 percent, respectively, of all health plan members.

People insured under government-sponsored health plans are not included in those totals.

WellPoint has a virtual lock on many individual and small-business customers by virtue of the Blue Cross and Blue Shield
plans it operates in Indiana and 13 other states; those plans are often the only ones available to individuals and modest-sized
employers in rural areas.

Even in the Indianapolis area, WellPoint’s Anthem plan and UnitedHealth Group are the only viable choices for small
employers, according to local benefits brokers. Companies like Aetna, Cigna and Humana are focused on larger employers.

The new law could reduce WellPoint’s profits from its 2 million individual customers and nearly 16 million people insured
by smaller businesses, analysts fear. Or, perhaps, the exchanges might help other insurers compete more effectively for those
customers.

But even if WellPoint’s profits and customer rolls shrink, the company might be able to make up the ground from the
millions of new customers expected to gain insurance because of the new law’s taxpayer-subsidies to buy insurance.

Those subsidies are expected to help 24 million customers buy health insurance in the exchnages by 2019. Also, WellPoint
could pick up new customers on the federal-state Medicaid program, which is expected to grow by 16 million people.

"WellPoint has become the market leader in both Individual and small business segments due to the strong value proposition
we bring to these markets, including a recognized brand and reputation, broad provider networks and competitive cost structure,"
WellPoint spokeswoman Kristin Binns wrote in an e-mail. "While the final market rules have yet to be fully described,
we believe many of these competitive advantages will continue to be valued in a reformed marketplace."