World Business

Managed-care providers UnitedHealth and Aetna, eyeing the specter of health-care reform, are diversifying into modern markets and product lines

by Wendy Diller From Standard & Poor’s Equity Research

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For managed-care organizations (MCOs), which footed the bill for roughly 34% of U.S. health care expenditure in 2007, health-care reform presents uncertainty and opportunity. Proposals things being so being debated in Washington and the different states aren’t affecting near-term business, says Phillip Seligman, a Standard & Poor’s equity analyst who follows MCOs. Nor are MCOs currently incorporating reform proposals into their leadership for 2008 or beyond.

Nevertheless, payers are expecting at least incremental changes to the system, given the level of concerns hind part before spiraling health-care costs and enlarging lack of access to affordable health assurance. On this, a panel of Wall Street analysts concurred at a recent conference on health-care reform sponsored by the Center on the side of Studying Health System Change (CSHSC).

Because they aren’t positive how reforms will play out, MCOs are hedging their bets by diversifying into new markets and product lines that offer a wide range of coverage and pricing options. Many of these products are designed to appeal to price-sensitive small-group and single buyers. MCOs traditionally considered these to be modest niche markets at best, but now behold them as of great weight toward future growth, particularly if reforms initially focus on getting coverage for the uninsured, as is popularly expected from the political science of oratory surrounding the issue.

The outlook for these non-traditional products is uncertain, however. As of the first quarter of 2008, several MCOs—WellPoint (WLP), Health Net (HNT), and others—were struggling to increase enrollment rates in non-traditional businesses. In its second-quarter proceeds call, WellPoint said it continued to understand slow enrollment through June. Non-traditional products endeavor a broad range of coverage at varying price points, but are compose unaffordable for a generous segment of the uninsured. Also, the weak established order has slowed demand for them.

MCOs argue that enrollment will increase when the economy revives. They diplomatic communication that some 20% or more of the 47 million Americans between 18 and 65 who are uninsured are well-off enough to afford coverage. More than 9 million of the uninsured acquire home incomes of $75,000 or more and could afford single policies, points out Joseph Zubretsky, chief financial magistrate of Aetna (AET). A further 11 million are eligible toward federal health programs but aren’t enrolled in them, he adds.

One determinant is likely to have being the November Presidential liberty. The U.S. system currently revolves around employer-sponsored health insurance, which presumed Democratic Presidential candidate Barack Obama would leave in place. Republican candidate John McCain and his supporters, however, would prefer a stronger emphasis upon individual responsibility for purchasing policies, using accusation subsidies and penalties to move people into the individual markets and discountenance employers from offering insurance. If McCain wins the Presidency, it could have existence a boon in spite of individual policies.