Health Insurers' Profits Hit by Investment Losses as Enrollment, Cost Concerns Continue

OLDWICK, N.J., Nov 17, 2008 (A. M. Best via COMTEX) -- FRE | Quote | Chart | News | PowerRating -- Investment losses tied to the global financial crisis dragged down third-quarter profits for U.S. health insurers. The results compounded ailments many companies continue to struggle with -- enrollment declines as employers lay off workers and high medical costs taking too big a bite into Medicare and commercial health plan premium revenue.

Companies' net incomes declined on millions in investment losses or impairments on holdings in Lehman Bros., American International Group, Washington Mutual, Fannie Mae and Freddie Mac.

As company chiefs insisted their companies remain financially strong, they addressed fundamental problems -- and uncertainties ahead -- in the historic presidential election year:

Rising Unemployment

H. Edward Hanway, chairman and chief executive officer, Cigna: We are clearly not satisfied with our outlook for 2009 for our ongoing businesses, but we view it as realistic given the current competitive and economic environment including rising levels of unemployment, which we anticipate will impact health care membership.

Wayne DeVeydt, chief financial officer, WellPoint: Clearly, this is a different economy than I think any of us have experienced in most of our lives, compared to any other previous recession...The number of small group employers that are offering coverage, especially in the one-to-nine employee range, has dropped at really an unbelievable rate over the last several years, especially when compared to previous recession periods...It is also affordability in an environment where people are making choices, hard choices, about making a house payment, making a car payment or buying their insurance.

Ron Williams, chairman and CEO, Aetna: Our current 2009 planning assumptions contemplate additional uncertainty regarding factors such as slower net membership growth, especially in commercial insured products, increased benefit buy downs and pricing pressures, upward pressure on medical unit costs, potential implications of a changing political environment.

Health Reform

Stephen Hemsley, president and CEO, UnitedHealth Group: The expansion of health insurance to those Americans who currently lack coverage will present additional opportunities for public/private collaboration. The number of commentators now believe that the pace and magnitude of change will be less than some had previously anticipated. Their reasoning is very basic -- there are now meaningfully fewer financial resources to dedicate to this important effort than just a few months ago.

Mike McCallister, president and CEO, Humana: Working with Congress and the private sector, the new president must find a way to harness Medicare expenses. Traditional Medicare has no internal cost controls, no care coordination, no disease management, no data mining, and no health and wellness programs. Only Medicare [Advantage] has the ability to control costs while improving health outcomes for our nation's seniors.

Medicare Premiums, Costs

McCallister: While we historically have had many counties with zero premium products, especially with the newer private fee- for-service offerings, 2009 becomes an important inflection point as we introduce member premiums across the country in preparation for the future and to reflect our cost.

Shawn Guertin, CFO, Coventry Health Care: What we see happening in Part D and what we see happening here in private fee for service in some ways have been a truism in this business for a long time; that the relative performance of the richer, higher-premium products tends to be worse and the performance of the lean design, low-premium product tends to be the best.

Angela Braly, president and CEO, WellPoint: Our senior business profitability in 2008 has been constrained by a poorly designed benefit plan in certain Medicare Advantage private fee-for-service offerings that resulted in adverse [selection]. We will continue to experience higher-than-expected medical costs on this block of business through the end of 2008.

Costly ERs

Joe Capezza, CFO, Health Net: The hospital data was masked because of the emergency room increases, and admissions that would go outside of our normal approval pattern. We started seeing these patterns change in the data we were receiving during the month of September, late August, early September; this caused us to do an in-depth review as to what was going on with the trends.

(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)

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