|Zacks Equity Research|
According to the law, any proposed rate increase above 10% will be reviewed more closely by both the state and federal governments, and approval will be granted only if the increase seems justified. This is expected to slow down insurers' premium escalation, thereby restricting top-line growth. Beginning in 2011, the provision of maintaining 80% of minimum loss ratio (MLR) on individual policies became effective. Also, the requirement of 85% MLR for Commercial policies will be effective from 2012. These provisions will lead to limited bottom-line growth as carriers will be forced to spend a minimum amount on the insured. A failure to abide by the MLR rule will force carriers to rebate the excess cash back to the insured or to lower premiums. The law also requires insurance coverage for people with pre-existing conditions at the standard rates. This will lead to lower profit per policy compared to earlier where individuals with pre-existing conditions were charged two to five times more than people with average health for the same policy.
While the federal government has issued a number of regulations, implementing Health Care Reform, many significant parts of the legislation, including health insurance exchanges ("Insurance Exchanges"), premium rate review, the scope of "essential health benefits," employer penalties and the implementation of minimum medical loss ratio ("MLRs"), requires further guidance and clarification at the federal level. As a result, the impact of the Health Care Reform will not be evident in the near term. Nevertheless, the range of possible changes due to the Health Insurance Reform Legislation could change the way insurance companies do their business. This will potentially impact pricing, product mix, geographic mix and distribution channels. The fundamental and potentially game-changing developments could threaten carriers' ability to achieve top and bottom-line growth. Recent Issues Concerning the Sector The sector is currently being subjected to both legislative and political issues.
Legislative – Certain aspects of the Health Reform Legislation have been challenged in the federal courts, with detractors attempting to challenge the scope of the law or even declare some parts of it unconstitutional.
According to the individual mandate provision, which will be effective since 2014, all individuals will have to purchase a minimum level of health insurance coverage or pay a financial penalty. Those debating against the law opine that the individual mandate is unconstitutional and thus a violation of the fundamental rights of Americans. A three-day session was conducted in the
Political – The forthcoming November presidential election will see
To sum up, the U.S. health insurance sector, as a whole, is in a state of flux and the situation will not see much improvement until final regulations fall into place. Meanwhile, the carriers continue to invest through the development of new products, strategic acquisitions and new business alliances to reshape and restructure their business. Aiming for Global Markets Carriers in the health insurance sector are also focusing on international markets, which specifically appear attractive on account of lesser regulations. Additionally, pressure on social health care systems along with increasing wealth and education in emerging markets are leading to higher demands for health insurance and financial security. This provides carriers with a vast market opportunity. Companies like
According to Health Data Management, 100 HIT acquisitions were recorded from
Some investors think that smaller companies like
Higher health expenditures and increased reliance on managed care. According to the government, national health spending is expected to touch
We expect most of the companies within our coverage to benefit from the trend. Among others, Aetna with
Health insurers are expected to face challenges related to medical-cost inflation.
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|Source:||Comtex News Network, Inc.|