Government Health Care and Health Care Costs and WellPoint and Health Care Reform and Health Care & Life Sciences and Health Care & Insurance

WellPoint exec sees health insurer 'oligopoly' coming

June 24, 2010

U.S. health insurers are “moving towards an oligopoly,” a process that this year’s health-care overhaul will accelerate, the investor-relations chief at WellPoint Inc. said Thursday.

New regulations on administrative spending and premium increases will push some independent insurers out of business or into deals with bigger rivals, Michael Kleinman, vice president for investor relations, said at a Wells Fargo & Co. conference in Boston. Indianapolis-based WellPoint, the country’s biggest health plan with 33.8 million members, has the scale to prosper from the overhaul, which is expected to add another 34 million to the ranks of the insured, he said.

The insurance market is becoming an oligopoly, a market where supply and pricing are dominated by a few companies, “and health-care reform is going to move us in that direction more quickly,” Kleinman said. “There are going to be smaller insurers that are not going to be able to survive in this marketplace.”

Led by WellPoint, 12 health plans cover two-thirds of the enrollment in the U.S. commercial-insurance market, said Ana Gupte, a Sanford C. Bernstein & Co. analyst in New York, in a June 11 note to clients.

The health-care overhaul is likely to push at least 100 insurers with 200,000 members or less out of the business “as the plans are increasingly unable to invest in the infrastructure and technology to effectively manage care,” Gupte wrote.

Asked to comment Thursday, Nicholas Papas, a spokesman for President Barack Obama, referred in an e-mail to the president’s remarks on June 22 touting the health-care overhaul.

The law “will put an end to some of the worst practices in the insurance industry,” such as canceling policies when patients get sick or imposing lifetime limits on coverage, Obama, a Democrat, said at a White House ceremony.

The changes “will make America’s health-care system more consumer-driven and more cost-effective and give Americans the peace of mind that their insurance will be there when they need it,” Obama said. “Insurance companies should see this reform as an opportunity to improve care and increase competition.”

Angela Braly, WellPoint’s chairman and chief executive officer, was among a group of insurance chiefs who met Obama on June 22. While Democrats have attacked the company for its premium increases, the relationship is improving, Kleinman said.

“The Obama administration understands that we need to work in partnership, that in order to make health-care reform work, the carriers need to be able to charge appropriate rates and make an appropriate margin,” he said. “Hopefully, a lot of that bad rhetoric is behind us.”

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