It was just last month we reported that health insurers were living the good life with strong balance sheets. That's likely to change soon, however, as certain healthcare reforms kick in and insurers prepare for others still three years away. With this in mind, I asked Paul Keckley, executive director of the Deloitte Center for Health Solutions, what he thought we could expect from the health insurance industry in 2011.
HL: What major trends can we expect to see next year?
Keckley: Consolidation will be one of the biggest. M&A activity is happening at full speed as we head into 2011. Many insurers are taking advantage of health reform to buy smaller plans, and are doing so at a discount since the law creates some issues that will be difficult for smaller players to accommodate. We may even see some consolidation among the jumbo players because scalability and sustainability will be so closely related in the next few years. Health plans are operating at thinner margins and spreading costs over a broader footprint.
HL: What the major impetus for this?
Keckley:It's the composite of increased regulation of how the insurance industry manages its risk. They are disallowed from preexisting condition considerations for individuals under 18 years of age. They are also now required to cover a number of preventive health services without any co-pays and deductibles. And they have to operate under an increased set of rules around transparency. Insurers are looking to offset the additional 4 to 6 percent in costs it will take to operate under healthcare reform. With medical loss ratios regulations taking effect, they will not be able to pass on these costs to employers or individuals.