Shares of WellPoint Inc. slipped Wednesday, a day after the nation's second largest health insurer surprised many analysts by picking a veteran hospital executive to become its next CEO.
THE SPARK: The Indianapolis company said Tuesday after markets closed that Trinity Health Corp. CEO Joseph Swedish will take over March 25 the same post at Wellpoint, replacing interim CEO John Cannon. Trinity Health is privately-held.
Swedish, 61, has not led a public company as a CEO, but he will bring more than two decades of leadership experience from the hospital sector to his new job.
He has served since 2004 as CEO of Michigan-based Trinity, a Catholic health system which runs 47 hospitals in 10 states. He also has worked as an executive for HCA, the nation's largest hospital chain, and he's served as a director for another insurer, Coventry Health Care Inc.
WellPoint has been searching for a new leader since Angela Braly resigned last August amid investor frustration over disappointing financial results. Cannon, who had no interest in becoming the permanent replacement, will remain with the company as executive vice president of legal and public affairs.
THE BIG PICTURE: Swedish will take over as WellPoint and other health insurers adjust to sweeping changes brought to their industry by the health care overhaul. Millions of uninsured people will start receiving coverage next year, when the state and federally funded Medicaid program expands and the government begins providing income-based tax credits to help buy insurance.
Insurers will have to compete on new, online exchanges that allow people to buy coverage with those credits, and they also will have to adjust to fees and coverage restrictions imposed by the law.
WellPoint runs Blue Cross Blue Shield plans in 14 states, including California and New York. It covers more than 36 million people and trails only UnitedHealth Group Inc. in size.
The insurer finished 2012 with two strong quarterly performances. But it also has been hit by enrollment losses as employers cut jobs, and it struggled with higher-than-expected claims coming from its Medicare Advantage business in California.
Analysts have said that many investors thought former Amerigroup CEO Jim Carlson would become WellPoint's next leader. WellPoint acquired Amerigroup in a recently completed, $4.46 billion deal.
THE ANALYSIS: Swedish will bring a fresh perspective to WellPoint, but such an outside choice could disappoint Wall Street, BMO Capital analyst Jennifer Lynch said in a research note.
"We hope to see Mr. Carlson remain an instrumental part of the leadership team," Lynch wrote.
Citi analyst Carl McDonald said in a separate note that he expects the market to struggle with the announcement. He said analysts don't know Swedish, just like they didn't know Braly, who was WellPoint's general counsel and an executive vice president before taking over as CEO in 2007.
"Swedish may ultimately be viewed as the best CEO in the history of managed care, but it's likely going to take the market some time to figure out if that's the case," he wrote.
SHARE ACTION: Down 4.6 percent, or $3.04, to $62.97 in morning trading, while the Standard & Poor's 500 index rose slightly. WellPoint's stock price sank 8 percent last year, as broader indexes rose, but the shares had risen since closing 2012 at $60.92.