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Shrinking Profits for Medical Insurance
Could Shrinking Profits for Medical Insurance Companies Lead to Lower Costs?
March 2008
Medical insurance giant WellPoint reduced its 2008 profit outlook this week, citing higher-than-expected medical costs, lower-than-expected enrollment and worsening economic conditions. As the high costs of coverage impact the profit margins for large insurance companies, will this lead to more affordable health insurance premiums for consumers?
The answer is that it just might.
WellPoint has lowered its 2008 earnings projection to $5.76 to $6.01 per share on operating revenue of $62 billion, down from $6.41 per share on operating revenue of $62.6 billion. They have also reported a record 300,000 fewer enrollees than had been predicted in January, which caused shares to fall 18% in after hours trading.
As economic hardship continues, and medical insurance prices go up, fewer and fewer people are enrolling in expensive insurance plans. In some cases other companies offer more affordable health insurance plans and draw away customers, in other cases, state or federal funded subsidies are covering more uninsured citizens.
There is a hope out there that as profits go down medical insurance companies will be forced to change plans, either offering better coverage for the same price, or offering more affordable health insurance overall.
This would be great, except that it requires that millions of Americans go without coverage first, so as to have the negative impact needed to affect such large insurance companies.
But it could certainly work, particularly if consumers are careful to shop around aggressively for more affordable coverage. When medical insurance companies who offer better and more affordable plans are rewarded with customers, others will be forced to lower their prices. This benefits everyone from small business owners to self employed individuals to students, and can go a long way in minimizing the impact of rising healthcare costs and medical debt in America.
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