The 2009 slowdown in private health insurance spending led, in part, to the most-sluggish growth in U.S. health spending since 1960, federal officials said last week. The figures—spending growth slowed to 1.3% from 3.5% the year before—underscored what one analyst called the “biggest unknown” facing health insurers.
Growth and demand
Stephen Zaharuk, a senior vice president in the financial institutions group for Moody's Investors Service, says insurers struggle to project demand for medical care during a weak economy, as job losses and household financial stress and insecurity prompt some to put off treatment. Insurers rely on demand projections to set premiums, he says. Flawed utilization estimates can squeeze margins as premiums fail to cover use, he says.
Zaharuk called the 4% growth in U.S. health spending in 2009, reported last week in the journal Health Affairs by CMS officials, an apparent anomaly. CMS officials said on Jan. 6 that slower spending by insurers and households as well as a drop in healthcare capital investment contributed to the slow growth rate.
Insurers saw enrollment plunge during the recession. Moody's Investors Service, which left its negative outlook for the sector intact last December, says insurers in its portfolio saw membership slide 2.6%, or roughly 3 million members, in 2009. Federal officials reported that U.S. private health insurance declined by 6.3 million, or 3.2% that year.
“Pent-up demand” and the “ticking time bomb” of individuals who delayed necessary care could potentially put the greatest squeeze on insurers' margins, Zaharuk says.
Insurers also face significant new rules this year which ratings agency A.M. Best said would likely contributed to lower margins in 2011, in a newly released report that also maintained a negative outlook for the sector. Insurers face new rules that require 80% to 85% of premiums be spent on medical care, depending on the policy and a review of any premium increase of 10% or more.
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