Financial Health Of Health Insurers
MADELEINE BRAND, host:
This is Day to Day. I'm Madeleine Brand. In a few minutes, friends and family divided by the U.S.-Mexican border meet at a place called Friendship Park, but now the government is bulldozing it to build new border fences.
Mr. MIKE FISHER (Chief Patrol Officer, San Diego Sector, U.S. Border Patrol): We've had cases were they would have parties on both sides of the border and they would throw soccer balls from one side to the other and the soccer balls would contain narcotics.
BRAND: The scene at Friendship Park; that story coming up. First, though, with more people out of work, fewer people have health insurance, and that is becoming a problem for health insurance companies. NPR's Joanne Silberner reports.
JOANNE SILBERNER: Three bad things are happening to health insurers. To understand the first thing, you need to know that health insurers routinely have money to burn. Well, OK, not to burn, but to invest. Uwe Reinhardt is a professor of economics at Princeton University.
Dr. UWE REINHARDT (Economics, Princeton University): Health insurance company collect premiums at the beginning of the month, but then the bills against that premium come trundling in only over a period of a year. And so, in the meantime, they get to keep this money, and it is called the float.
SILBERNER: The float has to be put somewhere. Health insurers could've put the money into risky investments like mortgage-backed securities or stocks, but they didn't, says Bob Laszewski. He's a health policy blogger who used to run a health insurance company.
Mr. ROBERT LASZEWSKI (President, Health Policy and Strategy Associates, Inc.): I did not witness any indications that people in the health insurance industry were looking to do some of these screwy things to start with. I mean, they all pretty much stuck to their knitting.
SILBERNER: Because unlike life insurers that may have your money for decades, health insurers pay out almost as quickly as the money comes in. So, they have to have it ready. According to Doug Sherlock, who analyzes the financial health of insurers, the companies are getting about a fifth of their pre-tax income on the float. The money is in long-term Treasury bills, corporate notes and bond, municipal bonds, very little in the stock market. Investment income is down more than half, he says, but that's not enough to take a big health insurer down. But it will hurt some, says economist Uwe Reinhardt.
Dr. REINHARDT: A lot of insurance companies are earning much less money on the float, which in the short run affects, obviously, their earnings per share.
SILBERNER: The second problem affecting the financial health of health insurers is a really big one. Insurers are losing customers, says Leonard Schaeffer. He's the former head of WellPoint, one the country's biggest health insurers.
Mr. LEONARD SCHAEFFER (Former Chairman, WellPoint): If you're a health insurance company and one of your clients is an automobile company and they lay off 10,000 people, then you're going to lose those 10,000 people as members.
SILBERNER: Fewer customers, little or no investment income, but it's the third problem that's a biggest one for health insurers: Wall Street. It's absolutely pummeled their stock values. At one point last year, for example, WellPoint's stock was down 70 percent. The rest of the sector was hit hard, too. Blogger Bob Laszewski says it wasn't just the overall stock market decline. There was a sense that health insurers' stocks had been overvalued. Then the companies scared the market by raising premiums, and there is that expectation of fewer employed people this year. And Laszewski says it's the stock market loss that should make consumers and businesses worry.
Mr. LASZEWSKI: What will happen because of that is Wall Street will put a great deal of pressure on management to increase its profitability, and that means price increases.
SILBERNER: Price increases? That translates to higher premiums. Princeton's Uwe Reinhardt says raising premiums may be difficult for insurers.
Dr. REINHARDT: In the early part of this decade, that is what was feasible. You could raise premiums 15 percent, and the employers rolled over like a bunch of puppy dogs. But the employers themselves are in a bad mode right now.
SILBERNER: Still, he predicts, the insurers will push employers and individuals to pay higher premiums, and they'll work on doctors and hospitals to accept lower fees. Now, for decades health insurers, their customers and health providers have been engaged in a kind of three-way shoving match. What's clear this year is that the shoves are going to be a lot harder. Joanne Silberner, NPR News.
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