Analyst Sees No Brakes On Health Rates

Weaver, who follows one Medicaid managed care company but focuses mainly on hospital companies, recently issued an optimistic, 63-page report about the near-term prospects for U.S. health care providers.

Between 1965 and the early 1990s, the U.S. health insurance industry went through a clear-cut underwriting cycle, with high profit peaks in the good years and big losses and cost-cutting in the bad years. Since the early 1990s, the cycle has flattened out, Weaver notes in her report.

Health insurers and other “payers’ are not reporting gigantic profits, but, Weaver writes, if they were going through the traditional underwriting cycle, they would probably be slashing premiums and costs and reporting big losses this year.

For now, Weaver writes, payer attitudes, provider attitudes and even employer attitudes are keeping insurance prices high and holding payer profits steady.

“Payers are confronted with the fact that employers want choice and choice leads to higher medical cost inflation,” Weaver observes. “As the industry has consolidated into primarily for-profit hands, payers have achieved a level of sophistication and pricing discipline. The even more startling fact is that as benefit consultants poll large employers about their expectations for 2003, the majority seems resigned to double-digit increases in the cost of health insurance.”

The underwriting cycle will eventually return, and health insurance rates will eventually head back to earth, but the realignment may not take place until after 2003, Weaver argues.