Health insurers in the coming year will be working to be in compliance with new regulations under the health reform law while, at the same time, they seek to diversify their businesses through mergers and acquisitions.
2011 Outlook: Insurers—Leaner margins
Starting in 2011, insurers will have to closely watch how they spend members' premium dollars, as mandated in the Patient Protection and Affordable Care Act. Under this medical-loss ratio rule, insurers must spend 85% of member premiums on patient care for large group plans. For small group and individual plans, insurers must spend at least 80% of member premiums on patient care. Insurers that don't meet these thresholds will have to give rebates to customers starting in 2012.
Already, the nation's largest insurer by revenue, UnitedHealth Group, Minnetonka, Minn., has revised downward its 2011 earnings outlook because of this rule.
Although the insurance market is expected to grow over the next five years with millions of uninsured entering the system, margins for health insurers will likely to become slimmer with the new rules, experts say.
In a challenged market, insurers are turning to mergers and acquisitions to develop alternate revenue streams. These could be in health information technology, disease management and wellness, experts say.
“The irony of all this around health reform is the industry is growing, not shrinking,” says Paul Keckley, executive director of the Deloitte Center for Health Solutions. “The healthcare pie gets bigger every year. Maybe not in insurance services, but in care management and care coordination, it opens up huge possibilities.”
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