Wellpoint at Leerink Conference Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Speaker: Ken R. Goulet
Executive Vice President-President and CEO, Commercial and Specialty Division, WellPoint, Inc

Probably put more effort into the exchanges than our competitors

“So I’d first say the focus we gave on it was probably more than our competitors…we’ve really put a lot of effort into exchanges. And we did feel that it was a transition of more affordable lower-cost networks combined with our brand would put us in a good position.”

We needed to because we figured there would be some attrition from small group

“We thought we needed to be because, as we have said, there will be some attrition from small groups into public exchanges, and we wanted to have a good catcher’s mitt for it.”

Had better data to price exchange products than others

“We have more data than most carriers because we are the largest individual carrier; we’re the largest small group carrier. And the pricing had to be positioned at a point we did it off our small group because we felt that there would be no medical underwriting; that the profile would be more like a small group, and that was our starting point before…I do know we’re the only ones that are saying we’re comfortable that it’s going to produce some margin for us this year. ”

There will be a lot more offerings on the exchange right now

“I would say going into next year, it’s important to know and we know that there will be more competition. In our markets, competition will be up 20% in number of carriers. Half of that will be the national carriers. So you referenced the U [United], but I would say there will be more carriers involved. There will be more product involved in our markets right now. There will be 50% more product being offered next year”

We all buy

“We’re all consumers. We all buy. And you buy by price and you buy by brand…the data we find is that people did sort initially by product. Then they sort by price, and then they choose on that price spectrum who they want. And the Blue brand makes a difference, depending on the geographic area, of about 3% to 5%. So someone will pay a little bit more for us than our competitors, but not a ton more. We need to be affordable.”

most people don’t shop around their insurance carrier

” I do think it’s sticky. We have done a lot of research going into it, but think of your car insurance or homeowners insurance. I know I can get a better deal if I go to Priceline and bid it this year, but I don’t bid it every year. Some of us stick as long as your year-over-year increase is rational.”

Honestly, I was nervous

“I do think our data gives us an incredible advantage going into it. I was quite honestly nervous, as you would be in running something, making a business proposition that large. But there was enough data to make a reasonable choice on what our pricing should be in each of our markets.”

Small group are moving to the exchange

“given that 80% of the people on our exchanges are subsidy eligible, if you’re a small employer group that is struggling to pay insurance costs and realizes if I put my people into the exchange 80% of them will get some sort of government subsidy, they see that that might be the right business decision for them.

So I do think we’re seeing a transition. I do think our book has more small group than Aetna. I don’t United’s book as close, but I think we had more to potentially lose up front, and we were aware of that and that was our strategy. We’re going to manage that transition.”

Healthcare costs may be stabilizing

“I actually think the landscape is changing some. Trends are being more stable. And while we’re pricing for potential upticks, and we really have to take our risk pools in mind, trend is a component of unit cost and utilization. And that’s exactly what it’s tied into, the number of units and the cost per unit. The cost per unit is being negotiated quite well at a physician and hospital level either through value pricing or through just normal traditional pricing. But the price increases that facilities and medical groups used to see, they’re not getting any more on that front.”

We do believe that pricing is not sustainable for the Hep C drugs, but not betting on it to decline any time soon

” we do believe that the pricing is not sustainable. We think that it – everyone can argue from different viewpoints. My job is to give affordable care to my members, and that’s my whole job. So when I look at that, I’m pretty comfortable saying I don’t think that price, even though there is a true value and it’s a wonderful drug and we cover it, it’s all for the right reasons. We feel that in specialty drug pricing that for larger populations like hep C, you have to be aware of the total population as well as the value when you’re assessing your cost to offset R&D and other items. So we’re hoping for a lower price, but we’re not betting on it right now.”