The figures on who benefits from the health care overhaul are coming in, proof that the insurance industry led the way: DOUBLE DIGIT profits are starting to roll in from the last quarter..
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JANUARY 20, 2011
The Upshot: Insurers’ Profits Seen Rising
By AVERY JOHNSON
Health insurers’ fourth-quarter reports will provide an early glimpse into how much wind the health overhaul could take out of plans’ profits—and, so far, Wall Street estimates don’t look all that bad for the industry.
UnitedHealth Group Inc., which discloses fourth-quarter results on Thursday, is the first managed-care company out of the gate, followed by WellPoint Inc. next Wednesday. Some early provisions of the health law went into effect in September, which means that the fourth quarter is the first time that they could affect insurers’ numbers.
Those provisions included benefit expansions, such as requiring that insurers cover preventative services and dependents up to the age of 26. As of Sept. 23, 2010, insurers are also prohibited from rescinding members’ coverage and must eliminate lifetime limits on policies.
In spite of those potentially increased costs, many health plans should post another quarter of double-digit profit gains, say analysts and industry consultants. One reason: patient claims from the overhaul’s early provisions appear to be less than plans had anticipated, says Ana Gupte, an analyst at Sanford C. Bernstein & Co. Insurers expect the law to remain, despite repeal efforts.
Researchers at Goldman Sachs Group estimate that the top four publicly traded plans will show earnings increases averaging 21% in the fourth-quarter of 2010 compared to the year-earlier period. UnitedHealth could see profit rise in the fourth quarter by 17%, according to Bernstein estimates. Aetna Inc., which reports its numbers in early February, could see a 65% jump in the quarter just ended, says Goldman analyst Matthew Borsch.
Other factors besides the overhaul are conspiring to make the final months of 2010 a profitable time for insurers. Visits to health-care providers, which were low earlier last year, likely stayed that way in the final quarter, analysts and consultants say. When members don’t go to the doctor or hospital that much, insurers profit because they pay less in medical costs.
As the economy shows signs of recovery, health-plan enrollment also could stabilize, analysts say. Uptake of private Medicare plans is expected to keep growing, despite a federal funding freeze to payments this year and rules that required plans if they didn’t have their own networks of providers to stop selling certain types of policies.
"It is a very good time for profits in the health-insurance industry," says Robert Laszewski, president of consulting firm Health Policy and Strategy Associates LLC.
Of course, a broader view of the overhaul’s impact on the insurance industry is still to come. In fact, the effect of the Sept. 23 provisions may not be entirely evident in fourth-quarter reports, according to analysts and consultants.
That is because many plans renew on a yearly basis, making Jan. 1 the first time those policies would need to offer expanded benefits. Also, members taking advantage of expanded preventative services, for instance, may file claims in the fourth quarter but those claims might not be processed quickly enough to show up in insurers’ numbers, says Mr. Laszewski.
This year will see the law phase in rules on how much insurers must spend on patients’ care versus profits, paperwork and overhead. That is expected to clip 2011 earnings, UnitedHealth executives said last November.
In 2014, insurers will need to begin accepting applicants with pre-existing illnesses, and new health-insurance exchanges will increase competition. Insurers will get millions of new customers from the law and that could counteract any negative effects, since individuals will be required to buy coverage.
Year-end reports also will be closely watched for hints of how insurers’ claims and profits will fare this year. WellPoint, Aetna and Cigna Corp. haven’t yet issued guidance for 2011, and their forecasts will provide insight into whether this streak of profitability can continue.
The Upshot comments on corporate earnings trends.
Write to Avery Johnson at avery.johnson@WSJ.com
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