Recession Slows Medical Inflation, Helping Insurers
By Avram Goldstein
Bloomberg.com
January 28, 2009
The recession may restrain growth in medical expenses this year as fewer people visit doctors, buy drugs or have surgery, helping health insurers such as WellPoint Inc. safeguard profits, analysts said.
WellPoint, which covers one in nine Americans, rose the most in four weeks after reporting that medical expenses climbed less than 8 percent in the fourth quarter. The increase was at the low end of a forecast given in October, and the report sparked a rally for managed-care companies.
During an economic slump, people who are worried about costs hesitate to tend to their health needs because of out-of-pocket expenses. The U.S. entered a recession in December 2007, and the economy suffered the biggest job losses last year since the end of World War II.
“Many analysts, me included, think that the recession will lead to lower health-care utilization, which could benefit managed-care companies or at least help stabilize their margins,” said Matt Perry, an analyst with Wachovia Securities Inc., in a note to clients today.
WellPoint rose even though it reported a 61 percent drop in net earnings. Besides investment losses, WellPoint had 288,000 fewer customers, mostly because of job cuts by its clients. The easing in costs outweighed the loss of subscribers.
The insurers “have very thin margins, so margin expansion is much more important to earnings per share than changes in enrollment,” said Ana Gupte, an analyst with Sanford C. Bernstein & Co., in a telephone interview today. “Everyone is expecting the recession will moderate” policyholders’ use of benefits this year, she said.
The cost of living fell in the U.S. in December as the recession deepened, capping the smallest annual gain in a half century, according to Labor Department data released this month. Consumers’ medical-care prices rose 2.6 percent last year, compared with a 5.2 percent increase in 2007.
WellPoint forecast in October that medical-cost inflation, which affects the setting of premium rates, would range from 7.5 to 8.5 percent and that it could speed up in 2009. The company said it was raising 2009 prices to stay ahead of that trend.
“We’re not ready to declare the trend has slowed down, and we’ve maintained our higher pricing levels,” said Wayne DeVeydt, WellPoint’s chief financial officer, in a conference call today.
http://www.bloomberg.com/apps/news?pid=20601202&sid=aAeilLHULubY
Let’s see. It’s really good news that 288,000 people lost their WellPoint insurance primarily due to job cuts, because the resultant reduction in spending on health care “outweighed the loss of subscribers.” So the expanded profit margins made possible by paying for less health care “is much more important to earnings per share than changes in enrollment.”
More good news for WellPoint is that medical care prices rose only 2.6 percent last year. In a message to investors, WellPoint’s chief financial officer announced that, quite conveniently, they would not accept the government numbers as a “trend,” and go ahead with their plans to increase the premiums at over three times the rate of health care inflation.
The Democrats promised us comprehensive reform that would provide affordable health care for everyone. Yet they are crafting reform based on an industry that celebrates the loss of coverage for another quarter of a million people, and, at the same time, gouges the rest of their clients with outrageously excessive premium increases.
We have no greater ethical duty than to abandon this nefarious health care financing industry that defines good news as what works best for investors, and replace it with our own public financing system that strives for the good news of what works best for patients. After all, doesn’t that represent the ethics behind change you can believe in?