Case Study_ Wellpoint Insurance Summary.docDocument Transcript
IntroductionIn the evolving insurance industry, Wellpoint stands on top with an astounding 34 million members.Through strategic growth choices and strong leadership, Wellpoint is positioning itself as the nationalleader in Healthcare for decades to come. The focus of this report will be to analyze Wellpoint,evaluate its strategy, and to make strategic recommendations to ensure longevityWellpoint’s GrowthWellpoint Inc was born from the acquisition of Wellpoint Health Networks Inc by Anthem Inc. Postacquisition, Wellpoint became the largest healthcare provider in the country with 28 million customers.Wellpoint offers a wide array of products and services in 14 different states as a licensed BlueCross/Blue Shield (BCBS) agent, and offers UniCare service for those who do not have BCBSavailable.Since Wellpoint Inc.’s conception in 2004, it has continued to grown through acquisitions. Recentacquisitions include WellChoice out of New York, and Lumeno’s out of Virginia. With these recentacquisitions and capitalizing on opportunities, Wellpoint has penetrated the market to delivershareholders unprecedented results. 1/10 individuals insured, are affiliated with Wellpoint. Shownbelow is the family of Wellpoint companies. Wellpoint Family of Companies Anthem BCBS Anthem Dental OneNation Benefit Administrators Blue Cross of California Anthem Life Insurance Co. PrecisonRX BCBS of Georgia Anthem Prescription Mgmt UniCare BCBS of Missouri Anthem Vision United Government Services BCBS of Wisconsin HealthCore Wellpoint Behavioral HealthEmpire BCBS (New York) HealthLink Wellpoint Dental Services Lumenos Health Management Corp. Wellpoint Pharmacy Mgmt AdminaStar Federal Golden West Dental & Wellpoint Worker’s Vision Compensation Managed Care ServicesAnthem Behavioral Health Meridian Resource Co. Wellchoice New JerseyCurrent NewsCurrently Wellpoint maintains it’s dominance in the industry with just over 34.2 million subscribers,with 1.3 million of those coming from the new Medicare Part D Plan. Lawsuits have plagued Wellpointin recent times. Most recently a former employee has filed suit against the firm claiming genderbiasness, and termination due to ‘whistleblowing’ on questionable business practices. The employee
questioned whether special deals provided to dentists under the Connecticut Medicaid Program werelegal. Wellpoint Spokesman Jim Kappel reaffirmed the stellar reputation among industry analysts onWellpoint’s corporate culture practices of embracing diversity and treating associates fairly.Other lawsuits include the investigation of whether Wellpoint systematically would eliminate BCBSmembers’ coverage due to expensive or high risk diagnosis.CEO Larry Glasscock recently spoke at the Goldman Sachs 27th Annual Global Healthcare Conferenceon June 14, 2006. Glasscock stated, “We are very much disciplined at not giving up profit margin formembership.”Wellpoint’s Business Foundation VisionWellPoint’s goal is to provide affordable quality healthcare while meeting the needs of their diversecustomers. They want to be a company that people can trust. WellPoint states their vision is to“transform health care and become the most valued company in our industry”. The result will be:Improved health, health care quality and affordabilityIncreased member satisfaction and enrollmentSuperior returns to shareholdersEnhanced opportunities for associatesA highly trusted and respected national organization MissionWellPoint’s mission is “to improve the lives of the people we serve and the health of ourcommunities.” The company carries out this mission by creating many different health benefits andfinancial services to meet the needs of their diverse customer base, and by being involved in thecommunities through foundations and corporate social responsibility programs. ValuesWellpoint has five core values that guide them and these are:Customer Firstactively pursue ways to improve quality and serviceLead through innovationcontinuous change to provide products and services to meet customers’ needsOne Company, One Teamtreat everyone in the company with respect, dignity, and common courtesy
Personal Accountability for Excellenceestablish and meet high-performance expectationsIntegrityalways act ethically, honestly, and fairlyStrategic and Financial ObjectivesExpects to yield $1.14 a share net earnings 2Q of 2006, and $4.63 for the yearSeek out new markets of entry per acquisition and corporate growthAggressively pursue large National accountsSeek to insure the uninsuredLower costs associated with SGAMaintain and improve strong brand recognitionInsurance IndustryThe healthcare industry is the largest in the nation, accounting for over $1 trillion goods and serviceseach year. Coordinately it is also the largest employer, with 1 out of 9 Americans workingThe Insurance industry is growing in terms of revenue, but shrinking in the total number of firms.Wellpoint and United HealthCare in particular have been very aggressive in acquiring smaller firms.Shown below is the United States population divided based on insurance indicators. The correspondinggraph depicts national opinion on health insurance companies.Commonweath Survey 02/2006 The Harris Poll 2005Although nearly ½ of polled Americans were not satisfied with the level of customer service providedby Health Insurance companies, it had rose 16% favorable from the year prior. As larger firms competeaggressively for market share it appears that quality of service delivered is also increasing. Health Insurance
IndustryCompetitive RivalryStrong industry rivalsIndustry growth based on acquisitionProduct offerings similarShareholder expectation drives constant innovationSupplier PowerGeneric drug options is forcing name brands to lower costsGeneral Healthcare costs still on the rise but slowing down in comparison to previous years.Physicals/Hospitals also in highly competitive industries. Prefer strategic partnershipsHospital Consolidations limit options, raising costs.Substitute ProductsComparable Options AvailableHealth Savings AccountSelf InsureGovernment AidBuyer PowerGenerally based on employers’ choiceCost is increased w/o group participationSeveral Markets bordering monopoly (Indiana 95% Wellpoint customers)New Market EntrantsCredibility essentialToo expensive to compete nationallyEconomics of Scale will force entity to be more expensiveH EALTH CAREINDUSTRYAlthough the industry has the potential to be very profitable, it is not an attractive industry for a newentrant. A successful localized firm would be acquired inevitably by one of the larger firms.Wellpoint competes head on with a few large firms in several markets. United Healthcare Group(UNH) is following a similar acquisition strategy as Wellpoint. Most recently, with it’s approvedacquisition of PacifiCare Health Systems Inc for $9.2 billion.
Other notable contenders include Aethna Inc. (AET) who was the first to offer full service healthinsurance on a national front. Cigna (CI) who operates a variety of products on a global scale is also aconsiderable threat. Shown below is an industry profile of Wellpoint and its competitors, as well as arevenue/net income comparison. The final chart is a 3 year stock history between Wellpoint’s largestrival United Healthcare, and the S&P 500. HighProfit
Low Few Localities F Many Localities e Many Localities w L o c a l i
t i e s Geographic Coverage Geographic Coverage Geographic Coverage Geographic Coverage Geographic Coverage Geographic Coverageprovided by SEC FilingsSeparating Wellpoint from the CompetitionWellpoint’s core business is the 14 Blue Cross/Blue Shield it facilitates. BCBS is the nation’s largestform of insurance with 1/3 insured being a BCBS member. Also a strong link is made betweeninsurance regulation and BCBS due to the high volume of members, including Federal/Stateemployees. BCBS is also federally funded for the task of Medicare and Medicaid payments.Also due to recent legislation and a strong push by the current President Health Care SpendingAccounts are projected to be on the rise. Since Wellpoint acquired Lumenos’, which specializes inprivate investments, it is prepared to handle future market demands.
Due to the large subscriber base, Wellpoint has unprecedented bargaining power with physicals andhealth care facilities to ensure the lowest cost of services.With the breadth of products Wellpoint offers it can consult all benefits into one carrier. A 2003 Limrastudy pointed out that, ¾ employees preferred to consolidate their coverages to one carrier. Havingmultiple coverages also increases the 80% annual persistency rate (i.e. lose 20% of your clients). Withmultiple options as well, bargaining strength is increased. Strengths WeaknessesStrong bargaining power per customer base High cost of SGAWide array of products and services Synergy of previous mergers not optimized “non-core” investments may distract which leads to higher retention managementStrong brand recognitionBCBS provider for 14 statesEconomics of Scale on Operations Opportunities Threats45 million uninsured Competitors more efficient operatingNational Employee Accounts principlesAcquisitions of smaller firms LawsuitsCapitalize on competitors dissatisfied Spikes in health care costscustomers (generally nearly 50%)Strategy in ActionWellpoint’s plan for future growth is to target the uninsured, elderly, and large national accounts. "Ifyou go back five or seven years, we didnt have a product to sell national accounts," CFO Dave Colbysaid. "They could go to our competitors and deal with one entity." In the last 5 quarters Wellpoint hasacquired 1.5 new members via National Accounts. Bringing the total to 9.3 million and Colby believesthat there is room for growth. National Accounts are derived from Employers which represents over ½the insurance market.Wellpoint feels that 30 out of the 45 million uninsured could be potential members. Including Medicareeligible members who have yet to sign up, as well as the youth who may not feel they need it. 378,000uninsured because Wellpoint members in 2005.Currently sitting at 1.3 million new Medicare Plan D members, Wellpoint is projecting to have 2million new customers from the program by year’s end. Wellpoint is anticipating the swelling of theelderly demographic.A purely financial strategy came with a $50 million investment into 2 high end luxury resorts and spas.WellPoint Chief Financial Officer David Colby said the companys stake in the luxury centers is achance to promote wellness and disease prevention. He added that WellPoint expects the resorts to be a
profitable venture. "Looking at the health-care marketplace and given our mission and definitely ourgoal of promoting healthy living and well-being, this is certainly very consistent of our goals," "Wewant to keep people healthy," he said. "Well-being is good in our business.”In May of 2006, Wellpoint agreed to acquire Ohio based HMO QualChoice Health plan, to acquiremore of the Medicaid market share. Qualchoice offers 68,000 new members to the Wellpoint family.The deal is expected to close in the later part of 2006.