One sector that had been touted as a refuge while the broader stock market works through its funk,health insurance,hit investors with a bombshell on Mar. 10, reports.

WellPoint (WLP) cut its earnings outlook, causing some analysts to worry that other health insurance providers may have underestimated health-care costs, which could lead to lower profits for the entire group.

After the market closed on Mar. 10, WellPoint cut its 2008 earnings-per-share outlook by 6% to 10%, to $5.76 to $6.01, from a prior estimate of $6.41, citing higher than expected medical costs, lower than expected enrollment in fully insured health plans, and uncertain economic conditions.

The largest provider of Blue Cross Blue Shield insurance in the U.S. also reduced its first-quarter EPS forecast to $1.16 to $1.26, from $1.44. Wall Street analysts had projected, on average, earnings of $1.44 in the first quarter and $6.41 for the full year.

Slower Growth Due to Slump

The Indianapolis company said it now expects medical costs to be 0.5% higher than anticipated for both 2007 and 2008, with neonatal, cancer treatment, and physician costs contributing to the increase. HMOs, which have consistently raised their prices over the last several years, can't pass these higher costs on to their customers given that pricing for their annual health-care plans have already been set. Now it looks as if higher costs for medical care will bite into their hefty profits.

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