'Greedy Insurers' Win

Despite all the hand-wringing and doomsday warnings about health reform, the insurance industry is poised to come out ahead.

When President Obama began talking about health reform at the beginning of the year, no other industry stood to lose more than the insurance sector. Throughout the year, and even in Obama's speech last night, insurers were painted as greedy, dishonest, and anticompetitive.

But look beyond the rhetoric and it's clear that insurers such as Aetna Inc., UnitedHealth Group Inc., and WellPoint Inc. stand to gain under the current reform being offered by Obama and Democrats in Congress, analysts say. There are several reason why:

Reason No. 1: There will be tens of millions of new customers due to a mandate that individuals buy policies.

"Insurance companies have said, 'if you want us to accept people with preexisting conditions and insurance is portable, you have to give me something,'" says Arthur Henderson, who heads Jefferies & Co.'s health research in Nashville.

President Obama explained last night why it's important and will be necessary for everyone to buy health insurance, equating it to purchasing car insurance. By adding more people to the pool—and presumably young, healthier people—insurers are going to be able to spread their risk. So if they no longer deny coverage to very sick people who are changing jobs, insurers will benefit by having more healthy people who pay into the system but don't tax it.

Reason No. 2: The demise of a public plan that would compete with private companies means insurers don't have to worry about going head to head with the government.

"Without the public plan, it's a wash to marginally positive," says Matthew Coffina, an analyst with Morningstar Inc. in Chicago.

While President Obama didn't officially kill the public option last night, he sent his strongest signal yet that he's willing to chuck it. An analysis by the Lewin Group, a research firm run by UnitedHealth Group Inc., previously predicted a large number of privately insured people would drop their plans to opt into a government-run program.

"People got really nervous about what (Obama) might propose," Henderson says. "But more and more people realize that getting big reform through is a complicated process, and it's going to be very difficult for him to get things legislated."

Insurers are still concerned. The president cited two alternatives to the public plan: a government-run option triggered in states where market reforms aren't resulting in more coverage for the uninsured or a nonprofit insurance cooperative set up by the government. Both ideas are significantly "watered down" versions of the original, therefore not having as big an impact, Coffina says.

Reason No. 3: Taxes on so-called gold-plated health insurance plans and other taxes on insurers will be passed on to customers.

"The tax on the Cadillac plans is a backdoor way of taxing benefits," says Les Funtleyder, health care analyst at Miller Tabak in New York.

Democrats want to tax the most expensive plans because there is high usage of medical services. In addition to that tax, they want to impose another straight annual tax on the insurers. But these taxes won't be absorbed by insurers, they will be passed on to their customers in the form of higher premiums.

On this point, the insurance lobby agrees.

"These new taxes ultimately are going to impact families and small businesses," says Robert Zirkelbach, a spokesman for America's Health Insurance Plans.

But Zirkelbach disagrees that the insurance industry has won and considers any sort of government-sponsored plan, including a nonprofit cooperative, as potentially harmful to the industry.

"It's way too early to say what's ultimately going to be put forth," he says. "Eighty percent of what's talked about has widespread agreement, but a government-run plan becomes an impediment to reform."