Health Insurers Experience Effects Of Recent Economic Downturn Despite History Of Resisting Recession

Main Category: Health Insurance / Medical Insurance
Article Date: 22 Apr 2008 - 11:00 PDT

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The Wall Street Journal on Monday examined "what is shaping up to be a shaky earnings season" for health insurers in the face of the current economic recession.

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

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

The Journal reports that the "weak economy is exacerbating a longer-term and more troubling trend" of coverage becoming "too expensive" for employers and workers. UnitedHealth and WellPoint have experienced declines in the number of members, which is partially a result of small businesses reducing coverage for workers due to costs, according to WellPoint CEO Angela Braly.

"What we're seeing is a market that's gotten so mature and beyond its customer that people can literally no longer afford to buy the product," Sheryl Skolnick, an analyst with CRT Capital Group, said. She added, "The number of uninsured is growing faster than any player in the game, and it's getting bigger at the expense of the Uniteds, the WellPoints."

According to the Journal, insurers have been "cushioning problems" by expanding into new markets, including offering plans to Medicare beneficiaries and creating health information tools that allow employers and individuals to better contain health care costs (Fuhrmans, Wall Street Journal, 4/21).

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