Analyst expects insurer loss on overhaul exchanges
Health insurers will lose money for the first couple years on business they get from the health care overhaul's public exchanges, according to a Goldman Sachs analyst. He says the hits won't be big enough to change earnings forecasts, however.
Analyst Matthew Borsch said in a research note he projects losses totaling less than $100 million before taxes next year from the exchange business of publicly traded insurers. That amounts to less than 1 percent of the estimated $23 billion in pretax earnings expected from those companies.
The overhaul aims to provide coverage for millions of uninsured people in the next few years. It took a step toward that goal last month when health insurance exchanges opened in states to help people sign up for coverage. But the debut of those largely online exchanges has been marred by technical problems that have stunted enrollment.
"Our forecast for losses seems prudent given the exchange enrollment difficulties so far," Borsch wrote.
He expects the problems to be fixed, but he also said the issues add to his expectation that initial enrollment will be lower than expected and skewed toward a higher-risk population. That means the patients who will most likely persist through the problems and sign up for coverage are the ones who need it the most.
That can translate into a loss for the insurer if it doesn't have enough healthy people in its risk pool to counter that population. Patients with chronic problems or expensive conditions tend to generate more in claims than they contribute in premium revenue.
Borsch said a bigger concern for health insurers will be rate cuts for Medicare Advantage plans, the privately run versions of the federal government's Medicare program. Insurers will receive less reimbursement next year for these plans due to overhaul-mandated reductions.
Shares of UnitedHealth Group Inc., the nation's largest insurer and biggest Medicare Advantage plan provider, rose 6 cents to $68.32 in midday trading Friday. Shares of the second-largest insurer, WellPoint Inc., climbed 11 cents to $84.91. The third-largest, Aetna Inc., saw its stock slip 38 cents to $62.32.