First-Quarter Results Will Indicate State of Health Insurers’ Finances

The state of the health insurance industry will be more clear after large insurers release their first-quarter financial results later this month, Dow Jones reports.

According to Dow Jones, recent announcements of reduced earnings estimates by several health insurers -- such as WellPoint, Humana and Coventry Health Care -- have "set investors on edge and fueled a debate on Wall Street," but analysts "disagree on whether the industry is simply in a rough patch or has entered a more extended period of weakness."

Goldman Sachs analyst Matthew Borsch said that he expects a "period of impaired earnings growth for most of the public companies until the downturn washes out excess competitive pressures," a process that takes two or three years.

However, Deutsche Bank analyst Scott Fidel has not seen evidence that the health insurance industry has entered a sustained downturn. He added that the important questions are whether the growth in medical costs will increase in 2008 and whether health insurers will adjust the prices of their health plans to account for such an increase in 2009.

According to Sheryl Skolnick, a health care analyst and senior vice president at CRT Capital Group, the health insurance industry has experienced a downturn for two years, and "it just took (WellPoint) imploding for us to figure it out." She added that the current prices of health plans do not account for growth in medical costs.

Skolnick said that health insurers will begin to reverse the downturn when they "create affordable health insurance plans that consumers really want to buy instead of affordable-but-barebones plans that do not offer consumers a compelling value" (Wisenberg Brin, Dow Jones, 4/2).