Health Insurers Post Healthy Profits but Remain Cautious on 2011

Whatever finally comes of the health care reform law, it appears health insurance companies have no intention of giving up their large profits -- at least for now. Investors may have gotten spooked last year, when President's Obama's health care overhaul was approved. But last month's House vote to repeal the law and a recent federal court ruling that provisions of it were unconstitutional seem to have given insurers a boost. Year-to-date, health insurers have outperformed major indexes by quite a margin.

Counterintuitively, one trend that boosted insurers' profits was the weak economy: Many cost-conscious Americans stayed away from doctors' offices to save on co-pays, deductibles, etc, and when customers don't use their policies, it's good for the insurance company. Flu-related costs also declined this year, adding to profits.

Pushback Against Health Care Reform

The five largest insurers -- WellPoint, Cigna, UnitedHealth Group, Aetna and Humana -- which along with some other competitors boasted a 250% return over the past decade, earned over $15 billion in 2010. That's 22% growth over their combined $12.2 billion earnings in 2009.

Starting this year, however, the Affordable Care Act demands insurers spend at least 85% of their income from group plans and 80% of payments from individual plans on medical care -- rather than on executive salaries and administrative costs. If the companies don't meet these requirements, they'll have to give rebates to their customers.

Insurers are fighting back, by reclassifying some expenses such as disease management as medical rather than administrative expenses, and by raising premiums. But they still expect the insurance overhaul to affect their rather healthy profits, and therefore project lower earnings in 2011 compared to 2010.

Cautious Outlook for 2011

UnitedHealth (UNH), the largest U.S. insurer by sales and the first to post results, reported a 10% growth in fourth-quarter earnings and revenue to $1.04 billion and $24.03 billion, respectively, handily beating analysts' estimates. UnitedHealth noted a "moderation in overall demand for medical services," as one reason for its improved results. The company's 2011 earnings outlook remained cautious, and was below Wall Street estimates.

Next up was Wellpoint (WLP). The largest U.S. health insurer by membership saw revenue decline 4% in the fourth quarter to $14.4 billion, but its operating income of $693 million also easily beat estimates -- thanks, again, to lighter demand for medical services. Wellpoint is more exposed to the effects of the health care law than its rivals, as a large portion of its revenue comes from the individual market. It also gave a cautious 2011 outlook, below Wall Street estimates.

But in a conference call, Wellpoint CEO Angela Braly said the company expects "to significantly mitigate this impact through top-line revenue growth and continued SG&A [selling, general and administrative] expense reductions." Also, aging baby boomers "presents a substantial growth opportunity for WellPoint."

Cigna (CI) was no different than its larger rivals, also attributing part of its $313 million adjusted quarterly profit to the trend of fewer hospital and physician services provided. And even as it widely beat analysts' expectations, its 2011 view came in below the average Street forecast. Cigna says its 2011 forecast reflects growth expectations, but also "the expected impact of current health reform regulations and some acceleration of medical services utilization during 2011."

Higher Profits Ahead?

Breaking the trend was the third-largest U.S. health insurer, Aetna (AET), which not only topped analysts' estimates when it reported fourth quarter results but also gave a 2011 view that was well above Wall Street average forecast. Aetna's profit climbed 30% to $215.6 million, even as revenue was down 2% to $8.54 billion, partly due to "lower utilization."

If these results are any indication, other health insurers such as Humana (HUM) will report similarly healthy profits and present similarly cautious outlooks for 2011, as they move to meet the new law's minimum medical-spending requirement and as demand for medical services returns to normal levels.

But judging from the stocks' outperformance year-to-date, perhaps investors believe the five could earn higher profits on possible higher enrollment and higher premiums.

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Now maybe, you can see why so many on the right use extreme words like socialism and socialist when any president has the balls to take on these criminals. America needs a non-profit healthcare system offered at the state level, where premiums are based on the costs of running the system, not profits every quarter. I really believe this could be done with the right people in place to strictly oversee waste, fraud and abuse of the system.

April 04 2012 at 1:51 PM Report abuse rate up rate down Reply


February 07 2011 at 4:11 AM Report abuse +1 rate up rate down Reply

Wow , They are just out of control with their greed but more power to them , if the incredibly naive American people do not have the backbone to demand change and realize the republicans are in bed with the 50 million dollar insurance co CEO's then let them suffer!

February 07 2011 at 4:08 AM Report abuse +1 rate up rate down Reply

The insurance companies are denying claims left & right for their own profit.
We had a pt claim denied for the following reason: The pt is a male, BC-BS had the
pt listed as a female. BC-BS WAS WRONG!!! The pt even called the insurance and told them "Look I am a male, my application for insurance states male. YOU are wrong." We at the Dr's office had to change the pt sex to match the insurance companies records even tho they were wrong and re-submit the claim. Ignorant? You betcha!!

February 06 2011 at 8:38 AM Report abuse +3 rate up rate down Reply
Kitty Katz

The USA has a start to the revolt, keep your paws crossed that Obama Care is going the way the 2012 election is going to go, both the bill and its owner ousted.

February 05 2011 at 3:30 PM Report abuse -1 rate up rate down Reply
1 reply to Kitty Katz's comment

Kitty, snap out of it. Your dreaming... Please don't make the mistake of thinking our current healthcare system is something Obama created. Our current corrupt system is the handy work of the GOP fat kitties.
Obama is trying to stop the insurance companies from many of the corrupt, greedy practices they now use to keep profits so high and premiums out of touch for so many... At some point you may want to look around to see who is actually beating you over the head, it's the GOP...

April 04 2012 at 1:58 PM Report abuse rate up rate down Reply

inflation may not for mr bernmanke and the rich but for all the people
of usa all the food gas cloth up up and all up none stop

February 05 2011 at 9:07 AM Report abuse rate up rate down Reply

Congratulations to all of you who oppose realistic health care reform! Because of the costs people are dropping their insurance and those with insurance are reducing their trips to the doctor. The health insurance companies are raking in profits, but it doesn't seem likely that they will pass any of the profits on to their subscribers in the form of reduced rates, lower co-pays or lower deductibles... Do you really think that the big private for profit health insurance companies are going to compete for your business while they continue to earn substantial profits?

February 05 2011 at 6:59 AM Report abuse +4 rate up rate down Reply

How nice, the health care insurance companies stocks went up. Anyone recall having to bail these crooks out when the economy crashed? Anyone care that thses guys cheer for health care costs to escilate because they make 30% off the top - on the backs of sick people?? Anyone care that the CEO of United Health care has paid himself $750 million in salary over the last 10 years, plus stocks, plus bonus, plus benefits!!?? MMaybe the health care bill needs tweeking, but to let the health care insurers (our current system) continue to drive the most expensive health care system even higher, and make even bigger profits with out regulating them is simply insane.

February 04 2011 at 4:42 PM Report abuse +4 rate up rate down Reply

we have the most expensive healthcare in the world is that surprising considering it's based on for profit corporations. not only that as taxpayers we subsidize these corporations IE: humana. if the free market system really works why do they need our tax $$$?

February 04 2011 at 2:47 PM Report abuse +5 rate up rate down Reply

Conservatives for higher insurance profits. RNC might come out of the hole, whaddya think?

February 04 2011 at 1:49 PM Report abuse +5 rate up rate down Reply