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A bill of health for insurance companies

Dan Weissmann Apr 17, 2014
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A bill of health for insurance companies

Dan Weissmann Apr 17, 2014
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Big insurance companies report quarterly earnings over the next two weeks, starting with United Healthcare today.

Thanks to new customers brought in by the Affordable Care Act, 2013 was a good year for health insurance companies.  The extended deadlines, which ended just this week, may provide more good news:   More enrollment, more premiums, more revenue.  Now comes the hard part. 

For one thing, new customers means new costs, in the form of claims, says Joel Shalowitz, a professor at Northwestern University’s Kellogg School of Management.  Insurers don’t yet know the extent of those costs.

“For people who needed services provided, the insurer is not going to see the claims for another month or two,” says Shalowitz. “The revenue has come in, but the expense has not yet been realized.”  

Those new customers also came with new restrictions on insurance companies, says Morningstar analyst Vishnu Lekraj. “They’re restricted as far as profitability, and overall there’s more competition in the market, there’s more transparency, there’s more regulation,” he says. “I do still see some tough headwinds for the industry and for most of the players.”

At best, Lekraj thinks the strongest companies will see flat profits for years to come.

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