A May 31, 2011, report by Zacks Investment Research revealed solid 2011 first-quarter earnings for most major health insurers. This is purportedly the third consecutive year of exceptional economic gains for the health insurance industry.
The market analyst firm attributed such ongoing health insurer profitability to several key factors. Chief among these were higher enrollment in health plans, widespread internal overhauls by insurers, and decreasing regulatory-related losses.
On the Right Side of the Law
Encouraged by recent health care legislative reform, Americans are apparently no longer foregoing or postponing needed medical treatment. This has resulted in much higher health plan utilization and correspondingly higher insurer revenues. Projections portend stabilized levels of increased healthcare utilization until 2012.
The recently enacted Health Care Reform Act (“HCRA”) is at the heart of all this increased marketplace activity. Effective as of this year, the HCRA mandates insurer maintenance of medical loss ratios of at least 80 percent for small group and individual health coverage. The new law requires a minimum ratio of 85 percent for larger commercial group policies. Medical loss ratio denotes the percentage of premium income that insurers must allocate to providing actual health care services.
A Banner Year
2011 portends to be a year of tremendous makeovers among major health insurance providers. Carriers must respond to a new regulatory climate, ongoing cost issues, and increasing consumer demands. This confluence of factors has forced insurers to re-examine their roles within the healthcare industry.
For instance, mandatory coverage for everyone, irrespective of pre-existing health problems has presented a major challenge for insurers. These phenomena are expected to temporarily decrease insurer profits for the next few years. Overall revenues are projected to re-stabilize with subsequent increased employment and consumer discretionary spending, however.
America’s aging population is also expected to fuel health insurance industry growth. Geriatric patients constitute a high-need segment of the market for healthcare services.
Currently, several major health insurer consolidations are at various stages of fruition. Insurers are combining resources in an effort to cut operating costs and maximize profitability. UnitedHealth Group and WellPoint have both acquired several new subsidiaries during the last half-decade. Similar alliances are slated for the near future as much stronger leveraging power with pharmacies, physicians, and hospitals yield the desired results.