Tuesday, July 6, 2010


Those who hate big insurers won’t be happy, but recent comments by Wellpoint’s VP for investor relations at an investment conference in Boston suggest that some details of health care reform may be more effective than expected in reducing administrative costs. The combination of the medical loss ratio rules (still to be defined by HHS), limits on premium increases (also awaiting final rules), and insurance exchange competition is expected—at least by Wellpoint—to cause a number of smaller insurers to drop out of the market or be acquired by larger firms.

This forecast is supported by comments from a Sanford Bernstein analysis that projects that at least one hundred insurers with 200,000 enrollees or fewer will be pushed out of the health insurance market by the effects of reform.

These estimates also won’t please those who believe that “if some competition is good, more is better.” On the other hand, having insurers with high administrative costs leave the market will lower average costs and—presumably—premiums, as well as strengthening the remaining companies’ negotiating position in setting provider payments.

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