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Large Insurers 2d Quarter Results

By August 4, 2009November 2nd, 2009Commentary

Wellpoint, Aetna and UnitedHealth Group are the nation’s largest health insurers and each has a diversified health care business.  All have reported second quarter results.  Wellpoint had enrollment and earnings below expectations, although it reaffirmed its full-year guidance.  The company’s ratio of claims payment to premiums was higher than the company anticipated and its ongoing cost trend is around 8%.  Inpatient expenses are increasing at double digit rates, mostly due to price increases.  Outpatient facility is also increasing at the low double digits, about 3/4 of that increase is due to price.  Physician costs are only increasing at mid-single digit rates, and only about 55% of that increase is due to price.  Drug costs are showing a mid-single digit increase as well, almost all of which is due to unit price increases.  Wellpoint lost around 330,000 commercial customers in the second quarter.  The company said its 2010 selling efforts are going well, which should help offset continuing losses due to unemployment, which is higher than the firm originally projected. The company emphasized its cost containment and pricing efforts.   (Wellpoint Transcript)

UHG met or exceeded revenue and earnings expectations and raised full-year guidance.  The company lost about 400,000 commercial members, but reported no issues with medical loss ratio or cost trends.  Since the firm had been insistent about pricing discipline in the previous year, it is not surprising that, unlike Aetna and Wellpoint, UHG is not seeing a mismatch between revenue and medical costs.  (UnitedHealth Group Transcript)

Aetna had a significant revenue and earnings disappointment and lowered full-year guidance.  The current medical-loss ration and medical cost trend are higher than projected, which resulted in underpricing.  The company said it is correcting its underwriting and pricing strategies, even if further member losses result.  Aetna lost only 64,000 comercial members in the quarter, which is consistent with potential under-pricing in comparison to competitors.  Aetna, as well as Wellpoint, noted that more COBRA members added to medical losses, as those members have costs of as much as 150-200% of premium.  Because COBRA is self-selected, healthier people tend to decide not to spend the money, which leaves a pool of less healthy COBRA members.    Aetna is projecting cost trends at around 9%.  As with Wellpoint, the company said most of the cost increase is due to unit pricing, not utilization.  Aetna also said it believed much of the increase could be attributed to provider behavior which intensified services and increased provider revenue.  (Aetna Transcript)

Interestingly, none of the companies spent much time discussing health reform impacts.  Also of interest is that apparent ability especially of hospital inpatient and outpatient providers to continue to raise prices.  At a time when there is so much concern about health cost growth and when there is a serious recession, it is remarkable that these price increases can be sustained.  It says something about the bargaining power of these providers vis a vis private payers.

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