HEALTH INSURER MERGER PAYS OFF WELLPOINT PROFITS RISE 107 PERCENT.

Byline: Brent Hopkins Staff Writer

WellPoint Inc.'s megamerger paid off handsomely for the insurer, allowing the company to report Wednesday that its first-quarter profits more than doubled while attracting the eyes of state regulators in the process.

In the first three months of 2005, the first quarter of combined results for Indianapolis-based Anthem Inc. and WellPoint Health Networks Inc. profits increased 107 percent. While Wall Street liked the news, the California Department of Managed Health Care called for a hearing to examine whether the company had violated its agreement not to raise Californians' premiums to fund the merger.

``Our success provides us with an excellent platform from which to reach new heights in 2005,'' said Larry Glasscock, WellPoint's president and chief executive. ``Our confidence in WellPoint's future is reflected in our decision to increase guidance and initiate a stock split.''

Revenue for the combined companies increased to $11 billion from $4.5 billion in the same period a year ago. Earnings improved to $611.7 million, $1.97 per share, from $295.6 million, $2.08 per share.

Medical enrollment improved to 28.5 million members, up from 16 million a year ago.

The company upped its guidance for the second quarter, saying it now expects earnings per share of $1.92, up from its previous $1.90 per share. For the full year, it expects to earn $7.94 per share, rather than the $7.75 it previously expected. It also expects operating revenue of $45.1 billion.

``WellPoint is our top pick for 2005 given its defensive characteristics with relatively little exposure to the not-for-profit Blue Cross plans and achievable earnings with upside from merger-related expenses, included in 2005 operating earnings, that subside in 2006, as well as the potential for some further Blues consolidation,'' wrote Matthew Borsch, an analyst for Goldman Sachs, in a note to his clients.

WellPoint also announced a two-for-one stock split that will take effect May 13. Shareholders of record as of that date will receive an equal number of shares on May 31.

The insurer's decision to raise premiums in California, however, drew a response from the DMHC, which called for the company to prove it hadn't gone back on its agreement. The DMHC and the California Department of Insurance signed off on the merger after winning concessions that included a pledge not to use premium hikes to pay for the deal.

The department said it had received 71 complaints about rate hikes and ordered an explanation at a May 13 public hearing.

``When we approved the Blue Cross change in control last November, the DMHC made guarantees to the public that the costs of the deal would not rest on the shoulders of policy holders,'' said Cindy Ehnes, the department's director, in a statement. ``In holding this public meeting, we want to protect California enrollees from merger-related premium increases.''

In response, WellPoint's Blue Cross of California subsidiary issued a statement saying the costs resulted from rising costs in care and demand for services. The reply met a skeptical response from the Santa Monica- based Foundation for Taxpayer and Consumer Rights, an opponent to the merger that called on the DMHC to investigate.

``It's our biggest fear come home to roost, that the merger would reward stockholders at the expense of patients,'' said Jerry Flanagan, a consumer advocate for the nonprofit group. ``It's a great time be a shareholder, a very bad time to be a patient. The more money that goes into profit, the less money goes into care.''

WellPoint's stock closed up $6.24, a 5.44 percent increase, at $124.45 on Wednesday.

Brent Hopkins, [phone]

brent.hopkins(at)dailynews.com