NU Online News Service, Dec. 3, 2003, 6:07 p.m. EST – Analysts at Standard & Poor’s Ratings Services, New York, predict that U.S. health insurers’ operating performance will be stable in 2004 because of continued profitable pricing, users’ acceptance of rate increases and medical costs that are “somewhat moderated” from the increases posted a year ago.[@@]

But the analysts also are predicting that health insurance companies will face more pressure to keep a lid on premiums.

Although health care firms, in general, report strong current earnings and a modest buildup of capital from retained earnings, this situation is temporary “because of the inevitable, longer term pressures surrounding the industry from providers, consumers and employers,” according to Shellie Stoddard, an S&P credit analyst who worked on the report.

Health insurance is a contentious political issue, as evidenced by the recent congressional battle to add prescription drugs to Medicare, Stoddard says.

Companies that grow through mergers and acquisitions could gain a cost advantage for a time, but other health plans could respond by cutting prices to compete, and that could hurt industry earnings, Stoddard says.

In addition, she says, smaller, not-for-profit plans may reduce their profit margins, which could force for-profit companies to compete at a rate below their targets.

Stoddard also says she expects to see more acquisitions next year by companies such as UnitedHealth Group Inc., Minnetonka, Minn., and Fortis Inc.

Fortis Inc. is the U.S. arm of Fortis, Brussels, which recently said it wants to spin off its American unit. Fortis Inc. hasn’t acquired much on the health care side recently, but growing through acquisitions “is how they built their business,” Stoddard says.

Anthem Inc., Indianapolis, and WellPoint Health Networks Inc., Thousand Oaks, Calif., which have focused on consolidating Blue Cross companies, may be too busy working out details of their own recently announced merger to focus on acquiring other companies for the time being, Stoddard says.