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WellPoint exec sees health insurer 'oligopoly' coming

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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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  1. You are correct that Obamacare requires health insurance policies to include richer benefits and protects patients who get sick. That's what I was getting at when I wrote above, "That’s because Obamacare required insurers to take all customers, regardless of their health status, and also established a floor on how skimpy the benefits paid for by health plans could be." I think it's vital to know exactly how much the essential health benefits are costing over previous policies. Unless we know the cost of the law, we can't do a cost-benefit analysis. Taxes were raised in order to offset a 31% rise in health insurance premiums, an increase that paid for richer benefits. Are those richer benefits worth that much or not? That's the question we need to answer. This study at least gets us started on doing so.

  2. *5 employees per floor. Either way its ridiculous.

  3. Jim, thanks for always ready my stuff and providing thoughtful comments. I am sure that someone more familiar with research design and methods could take issue with Kowalski's study. I thought it was of considerable value, however, because so far we have been crediting Obamacare for all the gains in coverage and all price increases, neither of which is entirely fair. This is at least a rigorous attempt to sort things out. Maybe a quixotic attempt, but it's one of the first ones I've seen try to do it in a sophisticated way.

  4. In addition to rewriting history, the paper (or at least your summary of it) ignores that Obamacare policies now must provide "essential health benefits". Maybe Mr Wall has always been insured in a group plan but even group plans had holes you could drive a truck through, like the Colts defensive line last night. Individual plans were even worse. So, when you come up with a study that factors that in, let me know, otherwise the numbers are garbage.

  5. You guys are absolutely right: Cummins should build a massive 80-story high rise, and give each employee 5 floors. Or, I suppose they could always rent out the top floors if they wanted, since downtown office space is bursting at the seams (http://www.ibj.com/article?articleId=49481).

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