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WellPoint(WLP) is one of the biggest names in the U.S. health insurance business, providing coverage to more than 33 million people. The firm is the licensee for Blue Cross/Blue Shield in some of the most populous states in the country, giving it a trusted brand name for corporate benefits administrators.
Size matters in the health insurance business. Not only do large operations help to bring down per-user administrative costs, they also give WellPoint considerable leverage when negotiating treatment and service costs with healthcare providers. And because switching costs are usually unsurmountably high in health insurance (users of employer-offered insurance, typically don't have a choice in providers), that huge scale is unlikely to get reduced in the foreseeable future.
While so-called Obamacare does close some of the holes WLP had to exit costly insurance payouts, it also comes with increased Medicare subsidies that should help provide more fee revenues for WLP. Right now, that fee-based revenue primarily comes from employers who opt to self-insure and have WellPoint administer its policies -- those work out to around 60% of the firm's accounts, giving it much less risk exposure than many peers have.
Fees generally equal consistent dividend payouts, and WLP looks due for a hike to its own 28.75-cent quarterly cash dividend. Keep an eye out for an announcement.
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-- Written by Jonas Elmerraji in Baltimore.