Original Link: http://www.huffingtonpost.com/2010/03/05/insurers-set-to-raise-pri_n_487684.html
By Sam Stein
The market concentration for health insurance is so monopolized in some areas that insurance companies are willing to raise prices and lose customers in an effort to improve their bottom line, a leading insurance broker told Wall Street analysts on Wednesday.
In a conference call organized by Goldman Sachs Global Investment Research, Steve Lewis, a highly regarded broker at the world's third largest insurance broker, Willis, painted a picture of the health insurance market in which employers seem likely to be priced out of coverage.
Noting that "price competition" between insurers was "down from a year ago," Lewis relayed that "incumbent carriers seem more willing than ever to walk away from existing business."
The phenomenon of insurers pricing their policies beyond where consumers can afford it seems to be already taking place. Last month Anthem Blue Cross told customers it would hike their health insurance premiums by as much as 39 percent (with the expectation that some would drop coverage altogether). In December, the Huffington Post reported that Aetna was planning on losing more than 600,000 customers by raising prices on their consumers in 2010.
Insurers are able to do this in part because the markets in which they operate have no adequate competition, suggests Lewis. The broker noted that "the smaller client segment" was "increasingly frustrated" with the renewal of their coverage and was "evaluating potential self-funding with stop loss protection" instead. Lewis added that employers in many markets knew "that they're not going to be able to trade down pricing very significantly" (i.e. find cheaper coverage) and, as such, would likely only change plans or become self-insured if there was a "fairly significant" disruption in service.
"As I mentioned at the outset, it was without a doubt the most challenging renewal cycle in my 20 years of this business with employers really struggling with how and what was going to drive their decision, combined with the lack of aggressive and competitive pricing in the marketplace," Lewis said.
The remarks are as clear an indication as any that while the health insurance industry suffered greatly from the recession it remains remarkably well positioned to recoup those profits going forward -- principally because companies can raise prices without worrying about the market hit it will take.