Health plans challenged by adverse selection fears

Given the economic conditions out there, health plans actually aren't doing too badly. But that hasn't been too impressive for Wall Street, which has kept a beady eye on an even more critical number than quarterly profits--the plans' medical-cost ratio. Analysts fear that even if plans are doing well for the moment, a shift within their membership toward sicker patients could bode ill for the future.

The scenario they fear so much looks like this: In a solid economy, the bulk of people that health plans cover have the insurance because it's a benefit of being employed. However, when unemployment climbs, as it has, only the sicker beneficiaries put out the money to keep their coverage. This leads to serious profit erosion among health plans.

Given the prevailing assumptions on the Street, it shouldn't surprise you that Aetna took a drubbing recently when it reported a higher-than-expected medical-cost ratio--with 83 percent of each premium dollar being spent on care. Despite having a rise in profit for the first quarter of 2009, its stock prices fell.

Meanwhile, analysts are fretting over what effect the new 65 percent subsidy for COBRA post-job continuation of benefits will have. One can only assume that they're expecting it to make the adverse selection problem worse. All told, despite continued profits, this should be a very tricky year for health plans to navigate.

To learn more about this trend:
- read this American Medical News piece (reg. req.)

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