It's good to be in the healthcare industry. And lately it's been particularly good to be a health insurer.
Exhibit 1: The country's largest health plans celebrated a strong third quarter led by results from UnitedHealth Group, WellPoint and Aetna, whose profit rose 53 percent, leading company to raise its year-end earnings forecast.
Conditions have been favorable for health plans, which realized an up-tick in investment income in recent months and benefitted from lower medical loss ratios—the portion of revenue spent on medical expenses.
Health plans also appear to be reaping benefits from efforts they began several years ago to encourage members to seek more outpatient care rather than expensive in-patient services, according to Analyst Sophie Snyder of market research firm IBIS World.
"For many services, insurers [have been] reimbursing hospitals at a higher rate for ambulatory care than in-patient care," she said. "The amount they've had to pay out is slightly decreasing and likely having a greater impact than in previous years."
It's too bad that where there are winners, there are also losers. Americans, perhaps for economic or other reasons, are paying fewer visits to the doctor, leading to lower volume, thus revenue, for healthcare providers. Combined with increasingly tight credit markets, a highly competitive environment, and perpetually declining reimbursements, hospitals are having a rough go of it.
Of course we know that what goes up must come down and health plans are now bracing for the latter after a good summer run.
The first bump in the road will be (it is hoped) an improving economy. As Americans begin spending more, they will inevitably return to things they cut out during the recession, such as that prescription for mild arthritis. There could even be a rather large swing the other direction as patients seek the treatments they've been putting off.
Of course, health plans will eventually benefit from favorable economic conditions, but that will set them up for what could be a pounding from healthcare reform and its many challenges including the new MLR mandates soon to be finalized.
These issues have not been overlooked by industry stock analysts who have begun what might be a string of pessimistic outlooks for insurers. As I write this, brokerage firm Stifel Nicolaus downgraded superstars UnitedHealth and WellPoint to "hold" from "buy," citing future regulatory pressures. And other insurance powerhouses Aetna and Cigna continue to sport a smattering of less than stellar investment opinions including neutral, hold and sell.
Insurers have made their peace with healthcare reform. While still trying to influence the finer points of the law, they realize that must play ball with the feds if they are to survive in the post-reform world.
According to industry analysts, their sights are now set on more routine activities including strategic critical infrastructure and capacity investments that will help them weather the influx of new customers under reform. Overseas markets are also high on many health plans' list.
p>Kudos on a good run, health plans. It's now time to mingle with the rest of us.