TAMPA, Fla. (AP) — WellCare Health Plans Inc.'s fourth-quarter earnings fell 43 percent as rising medical costs outpaced revenue gains. But analysts had predicted worse, and the health insurer said it received a rate hike from Kentucky, a state where it has struggled with expenses.
Shares soared 12 percent in Wednesday morning trading.
WellCare mostly administers the state and federally funded Medicaid program, which provides coverage for poor and disabled people. It also sells Medicare prescription drug coverage and Medicare Advantage plans, which are privately run versions of the government's Medicare program for elderly and disabled people.
The Tampa, Fla., company said Wednesday that Kentucky doled out a 7 percent premium increase as of Jan. 1 and moved up another 3 percent increase that had been slated for October to July 1. Citi analyst Carl McDonald said in a research note that the change could turn the state profitable for WellCare. Other insurers like Centene Corp. also have struggled with high costs coming from that state's Medicaid population.
Overall, the insurer earned $48.8 million, or $1.11 per share, in the three months that ended Dec. 31. That compares with earnings of $85.1 million, or $1.96 per share, in the final quarter of 2011.
Excluding certain items, earnings in the 2012 quarter totaled $1.32 per share, down from $2.15 per share in the 2011 period.
Revenue climbed 24 percent to $1.99 billion, as premiums — the largest chunk of that total — rose due to membership gains.
Analysts surveyed by FactSet expected, on average, earnings of $1.31 per share on $1.89 billion in revenue.
WellCare said its medical benefits expense rose 33 percent in the quarter to $1.69 billion.
The insurer's Medicaid enrollment grew 9 percent to 1.6 million people, due mainly to growth in Kentucky and other states. Membership in Medicare Advantage plans climbed 58 percent to 213,000 people due in part to its November acquisition of Easy Choice Health Plan.
For the full year, WellCare earned $184.7 million, or $4.22 per share, on $7.41 billion in revenue.
The insurer expects 2013 adjusted earnings to range between about $4.50 and $4.85 per share on between $8.7 billion and $8.8 billion in premium revenue.
Analysts expect, on average, earnings of $4.90 per share on $8.49 billion in revenue. Citi's McDonald estimated that the Kentucky rate hike added about 90 cents per share to WellCare's forecast.
Shares added $6.25 to $60.20. The stock has traded between $44.75 and $74.41 over the past year.