Low flu claims help boost 2nd-quarter profits for big health insurers

By Tom Murphy, AP
Wednesday, July 28, 2010

Health insurer 2Q profits rise as flu threat fades

INDIANAPOLIS — Last fall’s swine flu scare has helped health insurer profits in this year’s second quarter by preventing expensive medical claims and creating healthy amounts of unspent reserves.

The scare fizzled for the most part, but it motivated people to get vaccines, and it hit when insurers were trying to figure out how much to reserve for 2010 claims.

Fearing the worst, they set aside more than usual. Then vaccinations helped temper outbreaks of both regular seasonal flu and swine flu, sending fewer people to the doctor’s office and the leftover money to insurer income statements.

“Ultimately you’re seeing very little flu activity,” said Wayne DeVeydt, chief financial officer for WellPoint Inc., which runs Blue Cross Blue Shield plans in 14 states.

WellPoint said Wednesday that it recorded a $100 million gain in the second quarter because claims left over from previous quarters came in lower than the company expected. That helped lead to a $722 million profit, up 4 percent from 2009.

Aetna Inc. reported a similar $127.6 million gain on Tuesday, as its profit rose 42 percent to $491 million. UnitedHealth Group Inc. said last week its net income climbed 31 percent to $1.12 billion, and claims came in lower than it expected by about $270 million.

All three companies trumped Wall Street expectations. But their performances can’t just be chalked up to a flu scare that made patients race to clinics for shots.

Enrollment losses that plagued insurers during the recession appear to be slowing. UnitedHealth said its commercial insurance enrollment fell by less than 2 percent in the second quarter compared to a year ago, when it dropped 6 percent from 2008.

Deductibles are rising, and it takes patients longer to meet them before they start submitting claims for coverage to insurers. That means the claims and costs an insurer incurs can rise later in the year.

In last year’s second quarter, layoffs or the threat of them motivated people to have procedures or care done before they lost their health insurance along with their job, DeVeydt said.

“Those trends aren’t continuing,” DeVeydt said.

After that burst of claims, a recession often leads to a slowdown in medical spending with patients submitting fewer claims.

“Recessions are deflationary for medical costs,” BMO Capital analyst Dave Shove said. “Physician visits slow down, which leads to less hospital volumes.”

Shove said he expects medical spending will continue to slow into next year.

Analysts have said health insurance stocks may not reflect the profit increases insurers are reporting because of the lingering uncertainty of health care reform. Details for many parts of the massive law are still being worked out, and its impact on the industry is uncertain.

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