First quarter underwriting gains (profit that remains after paying claims and expenses) for the health insurance industry declined 2.6 percent to $2.7 billion in the first quarter of 2007, according to a report released by Ratings (formerly Weiss Ratings). The total is down $100 million from the first quarter of 2006. Investment gains (the after-tax gain when securities are sold) were up nearly 42 percent compared with the same period last year. These gains buoyed net profits, which rose 13.9 percent to $4.1 billion in the first quarter of 2007, up from $3.6 billion last year. A recent Kaiser Family Foundation report indicated, however, that premiums increased an average of 6.1 percent this year, increases that so far haven't been enough to offset increased medical costs.

Companies with the largest decreases in underwriting results along with the largest increases in investment gains include Highmark, Regence Blue Cross Blue Shield Oregon, and Health Care Service Corp., which does business under the Blue Cross Blue Shield name in Oklahoma, Illinois, Texas, and New Mexico.

Analysts see some problems over the next two years. First, with members having more open access to providers, medical costs have been rising annually. Insurers are struggling to keep premiums high enough to cover the costs. Raising premiums might work to offset the rising medical costs, but it will be unpopular with members. Second, commercial Medicare is doing well. While insurers make out great, it is unclear how long this will last. And third, the reliance on investment gains to soften bottom-line numbers could be turn out to be problematic.

"More and more of insurers' bottom lines are coming from investment gains," says Melissa Gannon, vice president for insurance and bank ratings at Ratings. "The industry is clearly beginning to struggle with profitability in its core business of underwriting health insurance as claims expense rises faster than premium income."

Well-positioned to navigate the political crosswinds of health care reform

Largest A+ rated health insurance companies.
Company Members (millions)
Health Care Service* 4.6
Excellus Health Plan** 1.9
Horizon Healthcare Services 1.6
Blue Cross Blue Shield of Tennessee 1.1
Blue Cross Blue Shield of Arizona 1.1
Source: Ratings by Ratings.
*Does business as Blue Cross Blue Shield of Oklahoma, Illinois, Texas, and New Mexico.
**Does business as Blue Cross Blue Shield of Central New York.

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There’s a lot more going on in health care than mergers (Aetna-Humana, Anthem-Cigna) creating huge players. Hundreds of insurers operate in 50 different states. Self-insured employers, ACA public exchanges, Medicare Advantage, and Medicaid managed care plans crowd an increasingly complex market.

Major health care players are determined to make health information exchanges (HIEs) work. The push toward value-based payment alone almost guarantees that HIEs will be tweaked, poked, prodded, and overhauled until they deliver on their promise. The goal: straight talk from and among tech systems.

They bring a different mindset. They’re willing to work in teams and focus on the sort of evidence-based medicine that can guide health care’s transformation into a system based on value. One question: How well will this new generation of data-driven MDs deal with patients?

The surge of new MS treatments have been for the relapsing-remitting form of the disease. There’s hope for sufferers of a different form of MS. By homing in on CD20-positive B cells, ocrelizumab is able to knock them out and other aberrant B cells circulating in the bloodstream.

A flood of tests have insurers ramping up prior authorization and utilization review. Information overload is a problem. As doctors struggle to keep up, health plans need to get ahead of the development of the technology in order to successfully manage genetic testing appropriately.

Having the data is one thing. Knowing how to use it is another. Applying its computational power to the data, a company called RowdMap puts providers into high-, medium-, and low-value buckets compared with peers in their markets, using specific benchmarks to show why outliers differ from the norm.
Competition among manufacturers, industry consolidation, and capitalization on me-too drugs are cranking up generic and branded drug prices. This increase has compelled PBMs, health plan sponsors, and retail pharmacies to find novel ways to turn a profit, often at the expense of the consumer.
The development of recombinant DNA and other technologies has added a new dimension to care. These medications have revolutionized the treatment of rheumatoid arthritis and many of the other 80 or so autoimmune diseases. But they can be budget busters and have a tricky side effect profile.

Shelley Slade
Vogel, Slade & Goldstein

Hub programs have emerged as a profitable new line of business in the sales and distribution side of the pharmaceutical industry that has got more than its fair share of wheeling and dealing. But they spell trouble if they spark collusion, threaten patients, or waste federal dollars.

More companies are self-insuring—and it’s not just large employers that are striking out on their own. The percentage of employers who fully self-insure increased by 44% in 1999 to 63% in 2015. Self-insurance may give employers more control over benefit packages, and stop-loss protects them against uncapped liability.