Bumpy Ride Ahead for Nation's Health Insurers

Underwriting gains for the health insurance industry declined in the first quarter, setting insurers up for a potentially bumpy road as the industry confronts the political winds of health care reform.

A new study, released today by TheStreet.com Ratings, reports that gains from the insurers' core business of underwriting health coverage declined 2.6% in the first quarter. Investment gains, up nearly 42% compared with the same period last year, buoyed net profits, which rose 13.9%. While a survey released last week by the Kaiser Family Foundation indicated that health insurance premiums increased an average of 6.1% this year, increases so far haven't been enough to cover medical costs.

The industry's constant state of change makes it difficult to follow patterns. But the troubling trends we are seeing now are reminiscent of the late 1990s, when the industry was taking a beating. Gatekeeper backlash, government pullback on Medicare funding and the unbridled drive to gain membership cost the industry dearly. Losses piled up, as well as lawsuits. In the end, massive consolidation ensued, and the industry's reputation was marred even further.

A few in the industry, particularly the Blue Cross Blue Shield companies, actually weathered that storm fairly well. Firms that were not heavily into network-modeled products or the Medicare market sidestepped those potholes. Just as important, though, was their ability to still net a profit -- or minimize losses -- due to gains made on large investment portfolios.