Health insurers including Humana ( HUM), UnitedHealth Group ( UNH) and WellCare Health Plans ( WCG) reported combined third-quarter earnings of $2.6 billion, setting up what will probably be the weakest year since 2003. Net income fell 31% from $4.8 billion in the third quarter of 2007, according to the National Association of Insurance Commissioners' health financial statement. Thirty percent of health insurers recorded net losses. If business stayed the same during the last three months of 2008, it's likely that net income dropped to less than $11.6 billion for the year, compared with $17.1 billion in 2007. In 2003, health-insurance companies booked profits of $10.3 billion. Profit margins are suffering from reduced investment income and downward pressure on underwriting. Health insurers have two main sources of income: underwriting, the difference between premiums and the amount paid out in claims; and investment income. Insurers invest enormous sums of money, illustrated by American International Group ( AIG), once the largest U.S. insurer but now on the brink of bankruptcy. There have been failures of small health insurers this year, though not on the scale of those in the banking industry. President Barack Obama plans to reform health care, and controversial plans for Medicare Advantage payments will increase profit pressure on health insurers. Health insurers generated $318 billion in cash from premiums in the first nine months of 2008. Because of the short-term nature of policyholder contracts, companies typically can't make long-term investments and rely on the liquidity of bond markets. Health-insurance companies recorded $6.5 billion in investment income during 2007, equal to 40% of profits. Based on trends, total investment income for 2008 may be about $3.4 billion, a decline of 48%. In the third quarter, investment income tumbled 46% to $527 million from the same period a year earlier.