WellCare Looking Vulnerable

OKLAHOMA CITY -- Even now, with its reputation in tatters and its stock price in the toilet, sullied WellCare (WCG Quote) still has plenty left to lose.

Soon, WellCare's core businesses could take a painful hit as well. Starting this month, WellCare must compete with other health insurers for Medicare customers and then convince government authorities to renew contracts for its Medicare and Medicaid policies alike. Moreover, it must do this with a heavily publicized raid of its headquarters hanging over its head.

To its credit, late Friday, WellCare announced that it has managed to execute new Medicare contracts in Illinois and a handful of smaller markets for the company. Going forward, other states could very well follow suit. Ultimately, the next seven weeks will tell the story.

On Thursday, WellCare will begin courting senior citizens during the open enrollment season for lucrative Medicare Advantage plans. Until last month's raid of the company's Florida headquarters, some experts viewed WellCare's booming Medicare Advantage business as the company's growth engine. Now, however, they see serious risks instead.

"It is hard to believe that brokers will be actively pushing the sale of WellCare-branded Medicare Advantage policies," Bear Stearns analyst John Rex wrote earlier this month. "More likely now, we could see how the company will be a net loser of Medicare Advantage business instead, being an easy target for competitors to sell against given the ongoing investigation."

Thus "we are lowering our [projections], as we assume 10% attrition in the MA book rather than the prior growth outlook," Rex added. And "this does not incorporate contract losses, which would have a much more significant impact and cannot be ruled out."