UPDATE: Amerigroup Warning Reflects Health Plans' H1N1 Risk
Amerigroup Corp.'s (AGP) earnings warning Monday reflects the
financial risk that health insurers--especially those focused on
the Medicaid population--face from the H1N1 flu virus.
The Virginia Beach, Va., company said it no longer expects to
meet its 2009 earnings guidance and warned that third-quarter
results will fall far short of Wall Street expectations, mostly
because of costs related to the H1N1 virus. Based on claims-paid
data through September, Amerigroup said it now estimates
third-quarter medical costs will be higher than its previous
The company said the virus is especially virulent among
children, pregnant women and other high-risk population groups, a
demographic that represents some 87% of Amerigroup's 1.7 million
members, most of whom are enrolled in Medicaid or related programs
for low-income or disabled Americans. Amerigroup said it
experienced a spike in flu-related activity among its Medicaid
members in September.
"The vast majority of our members are within the demographic
most at risk for the flu, and we appear to be early in the cycle.
With this in mind, it is difficult to determine if, and when, the
situation will abate, continue at current trends or worsen,"
Amerigroup Chairman and Chief Executive James Carlson said in a
Shares of Amerigroup recently lost 3.5% to $21.79.
Treating H1N1 has gotten more complicated as the flu has spread.
Last week, President Barack Obama signed an emergency declaration
for H1N1, with flu activity reported to be widespread in most
states and vaccine distribution slower than anticipated.
Because of the patient population most affected, other Medicaid
companies--such as Centene Corp. (CNC), Molina Healthcare Inc.
(MOH) and WellCare Health Plans Inc. (WCG)--are vulnerable to
higher medical costs. Amerigroup's warning comes when Medicaid
managed-care companies are seen as potentially benefiting from
efforts in Washington to expand health coverage to the
"We expect Medicaid companies will see a greater impact from the
flu than either commercial or Medicare populations because the
impact of the flu this year is more weighted towards children and
pregnant women," Wells Fargo analyst Matt Perry said.
Centene shares recently fell 3.7% to $17.34, Molina dropped 1.9%
to $18.78 and WellCare slipped less than 1% to $25.13.
Other managed-care companies, in addition to the Medicaid firms,
also are exposed to higher influenza-related medical expenses.
"It seems unlikely that Amerigroup is the only publicly traded
health plan that will revise its outlook due to the flu," Stifel
Nicolaus analyst Thomas Carroll said. "H1N1 is the primary
influenza strain in circulation at this time. We believe that the
indeterminable severity of the seasonal flu will dictate if managed
care companies face excessive downside."
UnitedHealth Group Inc. (UNH), one of the nation's largest
managed-care companies, last week partly blamed the H1N1 virus for
higher medical costs as a percentage of premium revenue.
Among the more diversified managed-care companies, Health Net
Inc. (HNT) fell 5% to $14.93, Humana Inc. (HUM) slid 3.5% to
$36.21, and Aetna Inc. (AET) dropped 3% to $25.27. Cigna Corp.
(CI), UnitedHealth and WellPoint Inc. (WLP) each fell between 2%
and 3.5%, while Coventry Health Care Inc. (CVH) lost 1.7%.
Possibly contributing to pressure on shares of the major
managed-care companies late in the trading day was an announcement
from U.S. Senate Majority Leader Harry Reid, (D., Nev.), that the
Senate would consider health-care legislation with a public
insurance option that includes an "opt out" provision for states.
Managed-care players that sell employer and individual plans are
vigorously fighting a public health-insurance option.
Amerigroup said Monday that it expects third-quarter per-share
earnings between 42 cents and 44 cents, below the average analyst
estimate of 57 cents on Thomson Reuters. The company withdrew its
2009 EPS guidance of $2.55 to $2.75, which it had issued last month
after lowering the previous full-year guidance.
-By Dinah Wisenberg Brin, Dow Jones Newswires; 215-656-8285;