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 longevity.WellPoint’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 grow 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. Of all of the people insured, 1/10 of those are affiliated withWellPoint. Shown below 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 female executive 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 continues to be considered an industry favorite with 2006 awards including top CFO of theYear in managed care for David Colby (3rd straight year) and 2nd Best Company by BusinessWeek.Other recent recognitions include placing in the top 50 companies to work for according toDiversityInc.WellPoint’s Business FoundationVisionWellPoint’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 organizationMissionWellPoint’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 customer needs
One Company, One Teamtreat everyone in the company with respect, dignity, and common courtesyPersonal Accountability for Excellenceestablish and meet high-performance expectationsIntegrityalways act ethically, honestly, and fairlyThe Business StrategyWellPoint is the nation’s leader in health benefits. The company serves approximately 34 millionmedical members. Therefore, WellPoint must tailor its business strategy to fit the needs of all memberswhile fulfilling company goals. The business strategy is as follows:Good health care is important to all consumers, which must be locally delivered and consumed. Theright health plan needs to have local market presence and resources to understand and meet the needsof consumers and health care professionals.Affordable health care is essential to all consumers. WellPoint works hard to keep their health carecoverage affordable by improving health, heath care quality, and by leveraging WellPoint’s scale toenhance services, improve operations, and better achieve efficiency.Members of a health care plan want to choose from a diversified product portfolio. WellPoint allowstheir members to choose what works best for them and their family in an open market.Growth primarily comes from having a diversified customer base. In order for WellPoint to maintaingrowth, they continually reassure customers the safety of their health plans. Their consistent, steadyperformance provides each customer with the security that their particular health plan can becompletely relied on for all health care expenses.WellPoint has established a business strategy that satisfies all members, employees, health careprofessionals, associates, and shareholders. The company can continue to be the leader in healthbenefits by upholding the current strategyStrategic and Financial ObjectivesExpects to yield net earnings per share of: $1.14 in the 2Q, and $4.63 for the yearSeek out new markets of entry through acquisition and corporate growthAggressively pursue large National accountsSeek to insure the uninsuredLower SGA costsMaintain and improve strong brand recognitionConcentrate brand awareness on a local scaleUtilize Economies of Scale to continue lowering costs from suppliers
Insurance 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 employed by such.Health Insurance Industry CharacteristicsMarket Cap 5.08 BillionSize- Employees 8.98 KQuarterly Revenue Growth 21.9%The 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.The Five ForcesNew Market EntrantsCredibility essential
Too expensive to compete nationallyEconomics of Scale will force entity to be more expensiveSupplier 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.Buyer PowerGenerally based on employers’ choiceCost is increased w/o group participationSeveral Markets bordering monopoly (Indiana 95% WellPoint customers)Competitive RivalryStrong industry rivalsIndustry growth based on acquisitionProduct offerings similarShareholder expectation drives constant innovationSubstitute ProductsComparable Options AvailableHealth Savings AccountSelf InsureGovernment AidCompetitorsWellPoint 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 Aetna 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 alsoa considerable threat. WellPoint UnitedHealth Aetna CIGNA Group (WLP) (AET) (CI) (UHG)Fortune 500 Rank #38 #37 #91 #130Total Subscribers 34 M 18M 15.4 M 10 M
HighProfitLow Few Locations Many LocationsGeographic CoverageWellPoint’s Key Success Factors/Core CompenciesWellPoint’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/state employees.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. Having
multiple coverage 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 management Untimely physician paymentsStrong 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 costs (Centers forcustomers (generally nearly 50%) Medicare and Medicaid project $100 billion increase in drug costs by 2010)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 million new members via National Accounts. Bringing the total to 9.3 million and Colbybelieves that there is room for growth. National Accounts are derived from employers which representsover ½ the 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.WellPoint has implemented the following programs to cater to lower income Americans.Blue Access Value Plan – Low monthly premiums catered towards the most common health careservices. Targeted towards: Early retirees and healthy lifestyles who are looking for cost-effectivebenefitsBeneFits – Offered to small businesses including part time labor.Tonik – 3 plan options and the sign up process is done entirely online. Targets 19-29 year old market(which is the most likely to be uninsured)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 aprofitable 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.$8 million were spent in 2005 on educating insured/elderly consumers, community clinics, and Latinooutreach programs.Strategic AssessmentWellPoint’s strategy has provided continued value in shareholders eyes, with stock prices up 38% in2005. Revenue growth for 1Q of 2006 was 24.5%, higher than the industry average of 21.9%. Costmanagement has lead to an impressive Debt/Equity ratio of .30 for the 1Q of 2006, and 11.2% earningsgrowth.National Accounts have grown tremendously with 16% of members being enrolled since the beginningof 2005. With the acquisition of Wellchoice, WellPoint now has greater strategic access to Fortune 500firms in the New York area.84% of groups purchasing BeneFits plans did not offer employees any insurance prior. 78% of Tonikparticipants were previously uninsured. In the last 2 years; 753,000 uninsured purchased WellPointpolicies, and 378,000 of these were in 2005 alone.WellPoint has successfully managed to implement a strong corporate strategy. It continues to reach outto uninsured Americans with attractive packages, while at the same time increasing profits. Even withaggressive expansion, WellPoint has nearly $20 billion in cash and investments.Strategic RecommendationsAggressively pursue National Accounts. With over 50% of the insured Americans depending onemployers for coverage, equates to an additional 115 million Americans nationwide.Implement awareness programs to attract more Medicare Plan D participants. With the FederalGovernment subsidizing 74.5% of overall costs, the additional 40 million potentially eligibleparticipants can be an extremely lucrative customer segment. Participants on average are expected tosave 37% on total health care costs.A strong push for Blue Value Access Plan to early retirees will ensure corporate growth in the 70million baby boomers that will turn 65 over the next 20 years.Additional acquisitions of smaller firms should be considered. Financial and Strategic goals can be metto service customers in new markets.WellPoint needs to continue to lower SGA costs per better integration of acquired companies. $375million can be utilized in synergies from the 2004 merger to today.