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Analyst Sees Strong Quarter For Managed Care

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NU Online News Service, Nov. 13, 2003, 5:59 p.m. EST – Managed care companies will continue to report strong profits and “not too many surprises” in the fourth quarter, predicts Sheryl Skolnick, a stock analyst with Fulcrum Global Partners, New York.

“Typically, there’s not a lot of membership growth in the fourth quarter,” Skolnick says. “You see more renewals than new members.”

But profits will remain good because, in most cases, demand for medical services also falls, she says.

Use of medical services is often low in October and November, then rises in early December, as employees schedule doctor visits to beat increases in co-payment levels that take effect after the start of the new plan year, Skolnick says.

But many people avoid going to the doctor over the holidays, and people who are worried about their jobs because of the slow economy may postpone elective procedures, she notes.

This year, Skolnick says, the increase in use in December may only partly offset the decrease of use in October and November.

Another factor putting the skids on costs is that many established prescription drugs are soon converting to over-the-counter or generic status, Skolnick says.

“I see premium growth in the low teens, and, with the cost trend still declining, there should be good profit margins, even if unit volume is a bit lackluster,” she says.

Standard & Poor’s Ratings Services, New York, warns, however, that pressure to compete on price and political developments may keep managed care companies from reporting record profits for much longer.

Public worries about access and affordability of good health care already have led to the introduction of a Medicare drug bill that might hurt industry profits, S&P says in a new report.

“With an uninsured population in the U.S. exceeding 43 million, the industry stands out even more as a political target,” says S&P credit analyst Shellie Stoddard, a director in Standard & Poor’s insurance ratings unit.

Stoddard contends that mounting political pressure also can be seen at the state level, as illustrated by a recent decision by BlueCross BlueShield of Tennessee Inc., Chattanooga, Tenn., to rebate part of its premiums to customers. State regulators “may cap or even seize a plan’s surplus,” Stoddard says.

The pressure to lower margins at nonprofit insurers will force pricing competition on the for-profit players, Stoddard says.