Health insurance price increases may slow next year, shrinking profits for smaller insurers

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Health InsuranceAn analyst at Wedbush has released estimates that have shown that in 2012, there may be a slowing in the rising cost of health insurance, but that this may cause smaller insurers that concentrate on commercial coverage to achieve smaller profit margins.

The Wedbush analyst, Sarah James, released a research note that showed that employer and insurer surveys have been indicating that price increases will be slower next year than they were in 2011, as a result of some of the health care reform elements having been implemented. Though this may have caused an initial rate increase, it may have been a one-time occurrence, as millions of uninsured individuals will be purchasing their coverage.

James also made note of the slower pace of growth this year for healthcare use, which will have an impact on next year’s price negotiations for commercial business, which includes employer-sponsored group health insurance and individual health coverage. She predicts that next year, the increase in the cost of insurance will be approximately 7 percent, when compared to the average 8 percent that will have occurred in 2011.

James went on to illustrate how these directions in pricing would affect various managed care companies:

• Premiums at Coventry Health Care Inc. will need to be further squeezed as a result of its commercial market exposure and as there will be new regulations for rates put into effect.

• Insurers such as Humana Inc., which have a large Medicare business, will show steadier margins.

• Insurance companies such as UnitedHealth Group Inc., which have a large market share will be better capable of contract renegotiations with care providers, so that they can compensate for the slowing of the price growth, and maintain margins.

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