Health Insurers Experience Effects Of Economic Downturn

Armen Hareyan's picture

The WallStreet Journal on Monday examined "what is shaping up to be a shakyearnings season" for health insurers in the face of the current economicrecession.

The Journal reports that "[e]conomic woes had little effecton health insurance profits" during the last two recessions -- in theearly 1990s and the early 2000s -- because the industry was able to raiseprices more quickly than health costs were rising.

Last month, however, several large health insurers issued "a surprisestring of profit warnings," the Journal reports. WellPoint, the nation's largest insurer, said thatrising medical costs, premium pricing miscalculations and the current recessionwould lead to lower-than-anticipated profits this year, resulting in "thesector's worst selloff in a decade," according to the Journal.As a result, investors will "scour" first-quarter earnings reportsfrom UnitedHealth, WellPoint and Aetna for"signs that health insurers' near-decade of expanding profit margins isabout to be thrown into reverse," the Journal reports.


The Journal reports that the "weak economy is exacerbating alonger-term and more troubling trend" of coverage becoming "tooexpensive" for employers and workers. UnitedHealth and WellPoint haveexperienced declines in the number of members, which is partially a result ofsmall businesses reducing coverage for workers due to costs, according toWellPoint CEO Angela Braly.

"What we're seeing is a market that's gotten so mature and beyond itscustomer that people can literally no longer afford to buy the product,"Sheryl Skolnick, an analyst with CRT CapitalGroup, said. Sheadded, "The number of uninsured is growing faster than any player in thegame, and it's getting bigger at the expense of the Uniteds, theWellPoints."

According to the Journal, insurers have been "cushioningproblems" by expanding into new markets, including offering plans toMedicare beneficiaries and creating health information tools that allowemployers and individuals to better contain health care costs (Fuhrmans, WallStreet Journal, 4/21).

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