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Health insurance industry healthier than predicted

Jeff Tyler Oct 17, 2012
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So far, the fiscal impact of President Obama’s health care reform is not nearly as bad as originally forecast by Wall Street types. Parts of the Affordable Care Act have already taken effect, like the rule requiring insurers spend a certain percentage of their profits on medical costs — some analysts had predicted that requirement would hurt the bottom line.

“Investors overestimate the impact of the law on managed care organizations,” says Matt Choffina, a senior equity analyst at Morningstar. “They seem to be feeling little, if any, impact from the health reform law.”

Consider UnitedHealth Group: On Tuesday, the company announced a 23 percent jump in third-quarter profits. With so many negative predictions, why is the health insurance industry so profitable?

“I wouldn’t say that they’re so profitable. It’s still a mid-single-digit-margin kind of business. They’re doing relatively well, I think, compared to what people had expected,” says Choffina.

As more Americans are required to have health insurance, insurers will gain more customers.

“Hospitals and doctors will have fewer customers that don’t have insurance, so they’ll have more paying customers. And so it will inject some more money into the system,” says Chas Roades, chief research officer at The Advisory Board Company, a research firm working with physicians and companies to improve health care performance.

Consumers, on the other hand, could soon be saddled with a larger portion of their health care bill. No matter who wins the presidential election, says Roades, “employers are going to be sharing more cost burden with employees for health care services.”

With the responsibility for health care funding shifts from companies to consumers, Roades predicts patients will be asked to pay higher co-pays and higher deductibles. As Americans pay a bigger portion of their medical bills, they are expected to become more discerning customers who will challenge unnecessary procedures.

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