A study by Weiss Ratings, a provider of independent insurance company ratings, suggests that compliance with the new healthcare reform law could cost insurers more than previously expected, according to a Weiss news release.
Reform requires that large group insurers spend 85 percent or more of their premium dollars on medical care and efforts to improve the quality of care. Comparing insurers that were already compliant with this threshold to those that were not, the study found that compliant organizations had net margins nine times less than non compliant ones.
Specifically, compliant organizations had average net profit margins of only 0.7 percent, while those not yet complying had average net margins of 6.3 percent. Additionally, compliant companies lost an average of $372 million on their insurance operations, with an average underwriting margin of a negative 0.2 percent. Meanwhile, the not-yet-compliant companies earned $6.11 billion with an average underwriting margin of 5 percent.
Martin D. Weiss, president of Weiss Ratings, commented in the release that large insurers will likely be able to handle the changes expected under reform. However, if their investment income declines significantly, insurers could face "debilitating impacts."
"Although the healthcare reform bill is expected to deliver significant benefits to consumers, Congress and state insurance commissioners should keep a watchful eye on the overall financial health of the industry, while consumers should be especially careful to do business with companies that have the wherewithal to promptly pay claims despite increased costs," Mr. Weiss said in the release.
Learn more about Weiss Ratings.
Reform requires that large group insurers spend 85 percent or more of their premium dollars on medical care and efforts to improve the quality of care. Comparing insurers that were already compliant with this threshold to those that were not, the study found that compliant organizations had net margins nine times less than non compliant ones.
Specifically, compliant organizations had average net profit margins of only 0.7 percent, while those not yet complying had average net margins of 6.3 percent. Additionally, compliant companies lost an average of $372 million on their insurance operations, with an average underwriting margin of a negative 0.2 percent. Meanwhile, the not-yet-compliant companies earned $6.11 billion with an average underwriting margin of 5 percent.
Martin D. Weiss, president of Weiss Ratings, commented in the release that large insurers will likely be able to handle the changes expected under reform. However, if their investment income declines significantly, insurers could face "debilitating impacts."
"Although the healthcare reform bill is expected to deliver significant benefits to consumers, Congress and state insurance commissioners should keep a watchful eye on the overall financial health of the industry, while consumers should be especially careful to do business with companies that have the wherewithal to promptly pay claims despite increased costs," Mr. Weiss said in the release.
Learn more about Weiss Ratings.