Several large health insurance stocks climbed Monday while the broader market fell after the Obama administration announced details of a new rule that will govern how much insurers spend on medical care.
Starting next year, insurers will have to spend at least 80 cents of the premium dollar on medical care and quality. For employer plans covering more than 50 people, the requirement is 85 cents. Insurers that fall short of these medical-loss ratio minimums may have to issue rebates to consumers.
The Department of Health and Human Services announcement capped months of debate and discussion over the issue, and analysts say there were few surprises in the final regulation.
"We think the rules are manageable, and that's really the take home message," Miller Tabak analyst Les Funtleyder said in an interview.
Administration officials say the new regulation will help consumers by preventing insurers from wasting valuable premiums on administration, marketing and executive bonuses. But analysts say regulators also avoided coming down too hard on insurers.
The impact of taxes in the calculation of these medical-loss ratios won't be as severe as investors initially expected. The law also allows states to apply for waivers if regulators conclude that the requirement would prompt insurers to pull out of local markets because they can't meet the minimums.
Monday's announcement eased an uncertainty that had been hanging over the sector and wound up being "somewhat more positive than expected," Stifel Nicolaus analyst Tom Carroll said in a research note. But he expects conservative 2011 financial guidance from insurers until they get clarity on receiving those state waivers.
"Longer term, our view is and has been that (medical-loss ratio) minimums will be 'mostly manageable' by the industry but near-term transition to the new regulations will create uncertainty and volatility," he wrote.
Shares of WellPoint Inc. climbed $1.09, or 1.9 percent, to $59.70 in Monday afternoon trading. Aetna Inc. shares rose 33 cents to $30.97 and UnitedHealth Group Inc. was up 23 cents to $36.23. Meanwhile, the Standard & Poor's 500 index fell less than 1 percent.