Health insurers may find 2010 full of challenges

Most major health insurers ended 2009 with better-than-expected profits and signs their enrollment losses may be slowing.
But potential headaches remain.

Employers will continue to demand lower rates in 2010 while medical costs rise.
Medicare Advantage cuts will squeeze some profit margins. And a still-unresolved health care overhaul hangs over the industry.

Indianapolis-based WellPoint Inc. and competitors Aetna, UnitedHealth Group and Humana have all said they expect 2010
operating earnings to sink from 2009, and several insurers offered earnings projections for the new year that analysts consider
conservative.

The unresolved overhaul debate may be influencing those outlooks, according to Stifel Nicolaus analyst
Tom Carroll.

Insurance stocks fluctuated last year as Congress debated bills that would cover millions of uninsured
people and rein in costs. Investors worried about the impact taxes, coverage requirements and other reform possibilities would
have on the sector.

However,the overhaul push stalled last month after a Republican won a special election for
a Massachusetts Senate seat.

The five largest publicly traded health insurers — Cigna, Humana, Aetna, UnitedHealth,
and WellPoint — all said the economy hurt their commercial enrollment as companies cut jobs and reduced the number of
people covered by private health insurance last year.

"2009 proved to be a difficult year with a number of
insurers losing more commercial enrollment than they originally expected," Carroll said.

Several company leaders
said they expect those losses to continue into 2010 before possibly slowing in the second half of the year.

"If
you don’t see any type of uptick in employment, that could really make the year challenging for them," Edward Jones analyst
Steve Shubitz said.

Aetna said Friday it expects to lose 350,000 members in the first quarter, which is when most
of its health coverage renews. That’s an improvement from its original expectation for a loss of between 600,000 and 650,000
members.

Overall, Aetna gained 1.8 million members last year, but it lost 590,000 due to job cuts.

"That’s
a big number, now we think that abates in 2010," Aetna Chief Financial Officer Joe Zubretsky said. "But … it’s
not changing real fast. That is clearly a watch out for the industry in 2010, the employment outlook."

A still-sagging
economy hurts more than just enrollment ranks, Wells Fargo analyst Matt Perry wrote in a research report. Companies struggling
with lower revenue will keep pressure on insurers when they try to raise premiums or administrative fees.

"This
is as much of a risk to managed care industry earnings as enrollment losses, in our view," he wrote.

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