Insurers Post Strong Earnings, But May Hold Back On Bragging Rights

Two leading insurers reported second-quarter earnings with rising profits this week.

First, on Tuesday night, Aetna said its second-quarter profits rose 42 percent, with a net income of $491 million, compared with $346.6 million for the same quarter last year, The Associated Press reports. "Aetna credited its earnings increase on a higher commercial underwriting margin from favorable prior-quarter reserve development and improved performance." Facing down rising costs and a slumping economy last year, Aetna raised prices on some plans and lowered the percentage of premiums it spent on medical care. Under the new health law, insurers will have to spend at least 80 percent of premiums on medical care, and 85 percent for large group plans, but the details of the requirement remain unclear (Viega, 7/27). 

A shift in the so-called medical-loss ratio helped raise the insurer's earnings. The Hartford Courant reports, "For the quarter, Aetna's combined medical-loss ratio for its commercial, Medicare and Medicaid businesses was 81.8 percent, compared with 86.8 percent in the same quarter last year. The ratio for its commercial business declined to 80.1 percent for the second quarter from 85.9 percent for the same quarter in 2009, an indicator more closely followed than the combined total because Medicare and Medicaid customers tend to need more medical attention than the average worker in the commercial risk pool" (Sturdevant, 7/27).

On Wednesday morning, insurer WellPoint also posted its earnings, ringing in a higher-than-expected 4 percent rise in profits, the Indianapolis Business Journal reports. WellPoint subscribers appear to have reduced health care spending as well. "The company said it spent 82.9 percent of customers' premiums on medical care during the second quarter, down from 83.9 percent during the same quarter a year ago. For all of 2010, WellPoint now expects its so-called medical loss ratio to be 83.9 percent, down from its April forecast of 84.3 percent" (Wall, 7/28).

The Wall Street Journal noted, before the earning reports were released, "Indeed, use of medical services has slowed across the industry. That should hold down the amount WellPoint spent paying claims, bolstering margins, analysts say." Making a big deal of its positive earnings statement, however, might be unwise for WellPoint. "Trumpeting profit too loudly may make it more difficult for WellPoint to raise prices down the road, or possibly egg on regulators who soon will determine new health-care rules that could have a big impact on profit."

Why bury the good news? "WellPoint became the symbol for insurance-industry abuse this past winter," when it planned to increase California premiums by up to 39 percent for some plans (Johnson, 7/28). 

Meanwhile, in a separate story, The Wall Street Journal reports that "UnitedHealth Group Inc. is in advanced talks to buy closely held Executive Health Resources Inc., a provider of medical management services to physicians, for about $1.5 billion, people familiar with the matter said" (Das and Johnson, 7/28).