Insurers Bracing for High Costs of Obamacare

Thursday, 11 Nov 2010 02:37 PM

 

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Become tech-savvy. Bulk up. Venture abroad.

Those appear to be among the most appealing alternatives for U.S. health insurers with their core U.S. markets in upheaval following passage of the healthcare overhaul, speakers at the Reuters Health Summit said this week.

Greater investment in information technology and international markets are certainties for several top companies, while others may also look to increase their scale to better handle the new reforms.

Standing pat is no option, said Mark Bertolini, the incoming chief executive of No. 3 U.S. health insurer Aetna Inc .

"I can't speak for what our competitors are doing. But when somebody says your whole industry is going to get put into a bag and shook up and then rolled back out on the table, if you are not thinking about what that means for you, I would feel badly for other people," Bertolini said.

"We can't stay where we are," he said. "We have to move. We have to change."

The new law imposes regulations and fees on insurers, and although it paves the way to expand coverage to 30 million uninsured Americans, it also threatens industry profit margins.

Bertolini, currently Aetna's president who will assume the top post at the end of the month, said he, current CEO Ron Williams and Chief Financial Officer Joseph Zubretsky have been contemplating the post-reform marketplace for more than a year in order to position Aetna properly.

One plank of their strategy involves greater investment in health IT, where Bertolini sees a huge opportunity in weeding out wasteful spending in the healthcare system. He estimates 30 percent of spending in the U.S. healthcare system is wasted.

Aetna is far from alone. UnitedHealth Group Inc has announced deals in recent months to acquire companies that specialize in software for hospitals and technology that eases information exchange.

Deal chatter has picked up involving insurer interest in healthcare IT companies, said Michael Neuberger, head of the healthcare group and managing director at BMO Capital Markets.

"When it comes to the payor side, I think what you're seeing is a realization that there's probably a need to find assets that add to their ability to continue to mine data," Neuberger said.

"It's really on that side of the equation where we're starting to see a lot of people have dialogue."

Liz Fowler, a top U.S. government official overseeing the insurance industry, said companies may be looking to capitalize on new government incentives to improve care.

"What we are hearing is a lot of plans are starting to think about quality and measuring quality," said Fowler, deputy director for policy in the U.S. Department of Health and Human Services' Office of Consumer Information and Insurance Oversight.

 

GOING ABROAD, GETTING BIGGER

Aetna and Cigna Corp are among the insurers who view international markets as an enticing post-reform option.

Health insurers sell expatriate coverage to multinational companies that are increasingly globalizing. A rising middle class of overseas consumers who can afford insurance products beyond what their governments offer provides another avenue for international growth.

"We continue to believe that the global expansion of our business is an extremely attractive opportunity and will continue to be a significant driver of our growth," Cigna CEO David Cordani said.

Cordani and others say companies may also look to become larger to better absorb the changes in the U.S. market, although he cautioned such deals are not necessarily smart moves and may encounter opposition.

"Over time, you'll see some more scale acquisitions," Cordani said. "Bigger for sake of being bigger I don't believe is a winning strategy."

Similarly, while Fowler agreed that consolidation was possible, she cautioned that "it has been a priority for the administration to make sure that we have adequate competition."

"The whole idea with the exchanges is to get more plans competing particularly in a lot of the markets where you have one dominant player," she said, referring to the exchanges that beginning in 2014 will allow consumers to shop for coverage.

Even as some on Wall Street worry about the future of private health insurers in the new U.S. market, Kris Jenner, portfolio manager for the T. Rowe Price Health Sciences Fund, sees a definite role for the industry.

Jenner said the new law is "providing a very generous benefit into a system that doesn't have strong cost controls."

He sees it as unlikely the new law will dampen healthcare spending, "and we are going to turn to one of the available means to try to hold down costs, and that is right in the sweet spot of the managed care companies."

"What we will see is the strongest will get stronger," Jenner said. "Even though right now they are kind of the target ... they've got a political bullseye on their back, I think I can see a future down the road where they will become the kind of necessary companies that we turn to to try and do something about out-of-control costs." (Reporting by Lewis Krauskopf, editing by Matthew Lewis)

© 2014 Thomson/Reuters. All rights reserved.

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