Health Care Legislation Benefits Insurers, But Annual Profits Are Not So Hot

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The health insurance industry is likely to benefit from a health care overhaul, but industry profits are not as high as many seem to believe.

"As President Obama's push for a healthcare overhaul moves toward its final act, the oft-vilified health insurance industry is on the verge of seeing a plan enacted that largely protects its financial interests," The Los Angeles Times reports. Legislation that includes an individual mandate and subsidies for those who can't afford coverage would mean "millions of new paying customers" for the insurance industry, representing a major lobbying success. "What's more, there are likely to be no limits on what insurers can charge, while at the same time the plan is expected to limit competition from any new national government insurance plan that lawmakers create."

"These anticipated wins -- from an initiative that has at times been portrayed as doomsday for health insurers -- is the result of a strategy developed by one of Washington's savviest lobbyists, Karen Ignagni." Many are surprised "that lawmakers have not wrung more from an industry that, surveys show, is held in low regard by the public," but "[f]or much of the last three years, industry leaders have been laying the groundwork for this battle." The industry's push for universal coverage was a shift from the early 1990's but has allowed them to shape proposed legislation in favor of insurers (Levey and Girion, 10/26).

American Medical News reports that managed care companies are also angling to get a piece of the expanding Medicaid market. Enrollment in Medicaid has swelled, thanks to unemployment rates topping 10% in many states, a trend that also has sent commercial membership diving. … Even under best-case scenarios, the profit margins are more modest for Medicaid than for commercial insurance or Medicare Advantage. But Goldman Sachs investment analyst Matthew Borsch predicts the smaller managed care organizations that specialize in Medicaid will be gobbled up by the big national plans, which want to expand their presence in the growing business without having to start from scratch" (Berry, 10/26).

Meanwhile, The Associated Press reports that health insurance company profits are not as high as many believe. "In the health care debate, Democrats and their allies have gone after insurance companies as rapacious profiteers making 'immoral' and 'obscene' returns while 'the bodies pile up.'" But actual profits tell a different story. "Health insurance profit margins typically run about 6 percent, give or take a point or two. That's anemic compared with other forms of insurance and a broad array of industries, even some beleaguered ones. Profits barely exceeded 2 percent of revenues in the latest annual measure. This partly explains why the credit ratings of some of the largest insurers were downgraded to negative from stable heading into this year, as investors were warned of a stagnant if not shrinking market for private plans" (Woodward, 10/25).

This information was reprinted from kaiserhealthnews.org with kind permission from the Henry J. Kaiser Family Foundation. You can view the entire Kaiser Daily Health Policy Report, search the archives and sign up for email delivery at kaiserhealthnews.org.

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