Posted on Dec 03, 2010 by Sergio Ulloa
The US Health Reform law mandates that by 2014, US citizens must have health insurance coverage or otherwise pay a hefty US$695 annual fine. It is estimated that the Health Reform will reduce the number of the uninsured from 19% of US citizens in 2010 to 8% by 2016.
The Health Reform law imposes new regulations and fees on insurers, and although it expands coverage to the millions of uninsured Americans, it also puts considerable pressure on insurance company profits. In the meantime US insurers are looking at new opportunities among other consumer markets in order to secure their continued growth.
A large number of US citizens are currently uninsured. Under the Health Reform law, health insurance coverage will be expanded to the millions of uninsured Americans, aiming for better access to healthcare for all citizens across the country. A recent study
, conducted by the Centers for Disease Control and Prevention (CDC) indicated that during the first quarter of 2010, around 59.1 million people in the US had no health insurance, for at least part of the preceding 12 months. This compares to 56.4 million uninsured in 2008, says the CDC. The study also found that the majority of uninsured were adults, aged between 18 and 64.
Health insurance in the US is usually provided by employers or through an employed family member's dependent coverage. However, employment is no guarantee of coverage. Due to financial pressures fueled by the recession, employers are having to cut back in costs including employee's insurance coverage. Between January and March 2009, over 1 million employees lost their health insurance coverage. A study
performed by the National Opinion Research Center (NORC) at the University of Chicago, found the proportion of workers in New York with employer-sponsered health insurance had fallen to 58%, compared to 69% in 2001. Further to this, unemployment has risen from 8.5 percent in March last year to nearly 10 percent this year. With the increasing unemployment rate in the US, the numbers of the insured has in turn dropped.
As well as increasing the number of insured individuals, the Health Reform will also affect the way US insurers do business. With new reform laws, insurance companies are barred from refusing coverage to individuals with pre-existing conditions. This law currently applies to children in the US and will come in to effect for adults in 2014. This means that US insurers will have less freedom over which market of individuals they insure, no longer being able to cherry pick their members. This will result in a larger proportion of high risk policy holders, among their population of members. Further to this, insurers are no longer allowed lifetime limits on coverage, taking away cost-cutting measures that insurers are likely to use on policy holders with chronic conditions. Needless to say, overall insurers will be spending more, post Health Reform.
With increasing numbers of Americans taking out health insurance policies, insurance companies will be anticipating a large number of new customers. This surge of new customers will also mean a rise in spending on claims, medications and other reimbursements associated under policy schemes. Newly-insured individuals will also be seeking primary care more than ever, given the cost of healthcare was a major barrier prior to the reform. We can therefore expect US insurers to use this increase to rationalise higher premiums, however this increase will not recover the profit loss that is likely to occur.
In order to enable US individuals more affordable access to the highly expensive medications in the US, the Health Reform also enforces insurers to cover 50 percent of prescription costs. The cost of prescription drugs in the US are by far the highest among developed nations. Given the pharmaceutical industry is the most profitable business in the country, with high consumers of expensive prescription drugs, this Health Reform law will also further impact insurers.
The new laws under the Health Reform undoubtedly put US insurers in an unfavorable situation, having less control over who they insure and putting a considerable dent in their profits. Insurance companies are therefore having to look elsewhere to recover the loss of profit that is expected in years to come.
A small market has open for insurance companies to target retirees who are no longer insured by the their employer, but are also not old enough to be eligible for the Medicare system that covers seniors over the age of 65. However, is this a profitable market for insurers - considering the age-related health expenses that are likely to be incurred?
What we can expect to see is an international expansion of US insurers
, moving their market to overseas consumers in order to continue and secure growth and profit. A larger, more profitable market exists among overseas consumers who can afford private health insurance, beyond what their Government's healthcare system can provide. While Aetna and Cigna Corp primarily offer health insurance through large employers in the US, they are among the US leading insurers who view international markets as an appealing post-reform option.
Cigna's CEO David Cordani, is currently investing in products sold to individuals that supplement Government healthcare. Cordani recently said
the company is seeing new opportunities for international growth as the company establishes potential markets in India and Turkey. Cordani anticipates this international growth will extend into Asia as well as Europe, the Middle East, and Latin America. As well as Cigna, Aetna is also investing in products such as these.
Mark Bertolini, new CEO of Aetna said recently
, "We can't stay where we are. We have to move. We have to change. Aetna views international markets as an enticing post-reform option. Health insurers sell expatriate coverage to multinational companies that are increasingly globalizing. A rising middle class of overseas consumers who can afford insurance products beyond what their governments offer provides another avenue for international growth".
It will take years until we know exactly what affect the Health Reform will have on the US healthcare system and insurance market as it is today. US citizens will be taking out more health insurance coverage and there will be a large influx of patients seeking primary care, given that healthcare will be more accessable. While what we can expect among US insurers, is a move towards a more profitable, healthier market of international consumers.
Insurance Companies Mentioned:
Aetna is a leading global diversified health care benefits company head-quartered in the U.S., serving approximately 35.8 million people with information and resources to help them make better informed decisions about their health care. Aetna offers a broad range of traditional and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioural health, group life and disability plans, and medical management capabilities and health care management services for Medicaid plans. Our customers include employer groups, individuals, college students, part-time and hourly workers, health plans, governmental units, government-sponsored plans, labour groups and expatriates.
A global health service company dedicated to helping people improve their health, well being and sense of security. CIGNA Corporation's operating subsidiaries provide an integrated suite of medical, dental, behavioural health, pharmacy and vision care benefits, as well as group life, accident and disability insurance, to approximately 46 million people throughout the United States and around the world.