Not the Best of Times For Managed Care Plans

It’s not often that we go to press hoping that late-breaking developments contradict one of our articles. Still, this month’s cover story by Managing Editor Frank Diamond on how the recession roils the managed care industry contains unwelcome data.

We wouldn’t mind getting caught overstating the case (well, we wouldn’t mind too much, anyway), if it meant admitting that things are rosy for health insurers.

Alas, A.M. Best, the credit rating company, released its report “U.S. Health — 2008 GAAP Financial Review” as we were wrapping up this issue. It does nothing to alter our dark assessment of what health plans went through last year and, our research suggests, are still going through.

Best says that the managed care industry’s net income fell by 36.5 percent last year because of a 22.5 percent decline in underwriting income and an almost 60 percent decline in investment income. Best added that it “revised its outlook to negative for the health insurance industry…”

Many industries look toward Washington, D.C., for help these days, and managed care is no exception. The Princeton University economist Uwe Reinhardt, PhD, says government intervention may wind up being the industry’s salvation.

“The United States will say, ‘We’ll do the risk pooling and we will do the financing, but you guys [health plans] will do the purchasing and the managing and the negotiating of fees with providers, and so on,’” says Reinhardt. “For that function, the government will pay health plans fairly well.”

If that happens, what health plans lose in today’s shrinking market base and depleted investment portfolios will be more than balanced by having millions more customers. Sounds good to us.

MANAGED CARE May 2009. ©MediMedia USA

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