Healthcare Reform Costs to Insurers May Exceed Forecasts

Compliance by health insurers with the medical loss ratio provisions in the new healthcare reform law, along with other reforms included in the White House's "Patients' Bill of Rights," may cost those companies more than analysts have predicted, according to research from Weiss Ratings, which provides independent insurance company ratings.

Weiss reported that companies already complying in 2009 had average net profit margins of only 0.7%, while those not yet complying had average net margins of 6.3%—or nine times more.

Starting next year under the new healthcare reform provisions, individual and small group insurers will be required to spend at least 80%--and large group insurers to spend at least 85%--of their premium dollars on medical care and initiatives to improve the quality of care. In addition, insurers renewing on or after Sept. 23 will be required to cover provisions including no arbitrary rescissions of insurance coverage and no lifetime limits on coverage.

"As long as their investment incomes hold up, most large insurers should be able to handle the increased medical expenses expected under the new health care reform," said Martin D. Weiss, president of Weiss Ratings in a statement. "If investment income declines significantly, however, few insurers will be able to comply without debilitating impacts to their bottom line, and ultimately, their financial stability as well."