Insurers Claim to Hate Healthcare Reform, but It's Making Them Money Anyway
The insurance companies are still complaining about the healthcare reform law's requirement that they spend 80 to 85 percent of premiums on patient care. But their statements to investors indicate it won't hurt them very much, according to Tom Murphy of the AP. Some companies project earnings growth, suggesting that the impact of the "medical-loss ratio" rule won't be as great as expected.
Aetna (AET) and Cigna (CI) both say that their incomes will grow in 2011, and Aetna is planning to declare a dividend. WellPoint (WLP), which runs Blues plans in 14 states, expects its earnings to be $300 million lower because of the medical loss ratio provision, dragging its profits down below last year's. But one analyst says that WellPoint, too, will soon declare a dividend.
Because the law requires carriers to spend at least 80 percent of their premium income in the small-group and individual markets, which have high administrative costs, insurers that focus on those sectors -- including WellPoint and Humana (HUM) -- will see a greater drag on their earnings. But indications are that most insurers, whatever their business mix, are adapting to the requirement.
Brokers get the shaft, patients get call centers
First, as expected, they're cutting commissions to insurance brokers. As long ago as last May, some insurance companies were paying agents flat fees, instead of commissions. One Idaho broker told the WSJ that his income dropped 20 percent as a result. It's not clear, however, whether most insurers are switching to flat fees or just lowering their commission rates.
Second, insurance companies are trying to spend more on certain patient care-related areas that could reduce their underlying costs. One example cited in the AP story is an increased emphasis on call centers that try to reduce the demand for doctor visits by advising plan members how to manage their own conditions.
Plus, better care management. Who'da thunk?
Some insurers are also investing in more sophisticated systems to help patients get appropriate care. For example, Aetna bought ActiveHealth Management a few years ago to prompt patients to seek the preventive and chronic care they need. Recently, it acquired Medicity, a firm that provides health-data exchange services to 750 hospitals and 125,000 physicians, for $500 million. While it's likely that Aetna did this partly to be involved in accountable care organizations, Medicity CEO Kipp Lassiter suggested another reason:
The combination of Medicity's connected health care platform for providers with the clinical decision support capabilities of Aetna's ActiveHealth Management subsidiary can help physicians make better decisions in real-time as they collaborate and coordinate care.
So, even if insurance companies don't like the medical-loss ratio rule, it appears to be motivating them to move further in directions that they already wanted to move in for business reasons. The provision could conceivably induce some of them to abandon the individual or small-group market, but I doubt it -- that's where the main growth in the market will come from when 16 million people gain coverage in 2014.
Image supplied courtesy of Flickr.
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