Managed Care Outlook

Things look rosy for large insurers

MANAGED CARE June 2005. ©MediMedia USA













Over the past 18 months, the managed care industry has seen significant consolidation by UnitedHealth Group, WellPoint, and Aetna — three of the largest health plans in the industry. Because of their sheer size, they have benefited from great market leverage, economies of scale, and solid internal cash flow. As a result, they are in a better position to increase profits than their smaller counterparts, primarily by increasing membership and by mergers and acquisitions.

According to a recent industry overview issued by Merrill Lynch, big insurers are set to improve profitability while expanding market share in 2005-2006. Merrill Lynch expects large companies to outgrow their smaller brethren because they will not have to lower premiums to gain membership. These large companies should maintain a better level of price discipline — charging an appropriate price to cover operating costs.

Large players in this sector have also gained market share from companies that have not been doing as good a job balancing costs and revenues, as well as from regional health plans that are not publicly traded.

Source: Company reports and Merrill Lynch

MANAGED CARE June 2005. ©MediMedia USA