US Health Insureres To See Profits Drop Under Helath Care Reform; It Couldn't Happen To A Nicer Bunch of Guys

OCTOBER 19, 2009
CEOs Tally Health-Bill Score
Drug Makers and Hospitals Figure to Benefit, While Insurers Brace for a Big Hit
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By JANET ADAMY and GREG HITT
The drug industry stands to gain in a health-care overhaul by getting tens of millions of newly insured customers, while insurance companies -- especially those that cater to the individual market -- look like they are in for a tougher time.
That is the early scorecard from executives poring over Congress's sweeping health legislation. Senate Democrats are meeting this week to write the bill they plan to bring to the floor, following last week's 14-9 vote in the Senate Finance Committee for a health bill that would cost $829 billion over 10 years.
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Carlos Ayala, a 15-year-old whose family lacks health insurance, gets a physical exam late last month at the University of Miami Pediatric Mobile Clinic.

The bill would expand insurance coverage to 29 million Americans by giving tax credits to low- and middle-income citizens to offset the cost of health insurance and by widening the Medicaid federal-state insurance program for the poor.
While many provisions remain up for negotiation, the Senate Finance bill is expected to form the backbone of any final legislation.
The spread of insurance would help drug makers, pharmacies and hospitals. All of them sometimes have to give away their services -- or lose business altogether -- because their customers don't have a way to pay under the current system.
Insurance companies would get more customers, too, but not necessarily the ones they want. The Finance bill bars insurers from rejecting people because of pre-existing illness. And the committee weakened the requirement that all Americans carry coverage. Insurers also face the heaviest new taxes under the bill.
The health-insurance industry over the past week has emerged as one of the Finance bill's most vocal opponents. President Barack Obama fired back in his Saturday radio address, saying the criticism was "smoke and mirrors." The president backed a congressional review of the industry's antitrust exemption.
David Snow, chief executive of Medco Health Solutions Inc., applauded the expansion of coverage. His company manages drug benefits for employers and public insurance programs. "That would be a brand-new market for Medco to serve," Mr. Snow said.
However, Mr. Snow and other health-industry executives said that while the bill trims the growth of spending on Medicare, the government-run health program for the elderly, it doesn't do enough to slow the rising costs that private employers face. "It's really about access" to insurance, he said. "There's very little in the bill about cost and quality."
Democratic supporters of the bill say it includes new experiments on ways to pay for higher-quality care, and they say the private sector typically emulates cost-saving steps started by Medicare.
Drug makers struck a deal with the White House and Finance Committee leaders in June on concessions that would save the government an estimated $80 billion in health-care costs over 10 years, with the hope of staving off new government price controls on prescription drugs. In recent weeks, that deal has protected pharmaceutical companies from having to make greater concessions sought by some senators.
David Brennan, chief executive of AstraZenecaPLC, said that despite the influx of new customers, the drug industry won't necessarily come out ahead. "We don't have an $80 billion upside that offsets this $80 billion contribution," he said.
Hospital companies struck a deal to forgo $155 billion over a decade, partly through lower government reimbursements for treating people without insurance. But hospitals say the Finance bill doesn't go far enough to thin the ranks of the uninsured. Some important Democrats, including Finance Committee Chairman Max Baucus, are signaling their desire to widen coverage in the bill.
Insurers appear to be the biggest losers. Shares of insurance companies have been down across the board over the past month as the likelihood of congressional action rose.
Among other slaps at insurers, the bill makes them pay $6.7 billion a year in new taxes, distributed by their market share.
Insurers Humana Inc. and WellPoint Inc. have the highest percentage of their earnings at risk based on the proposed changes, according to research by Goldman Sachs. Humana derives much of its profit from administering Medicare plans, which face more than $100 billion in cuts under the Finance bill. WellPoint provides insurance to many individuals and small businesses -- a market that would move to a government-run health-insurance exchange under the legislation.
Other industries also face new taxes under the bill. Perhaps the worst off, relative to its size, is the medical-device industry, which would see a $4 billion-a-year hit. With allies such as Sens. John Kerry (D., Mass.) and Ben Nelson (D., Neb.), the industry is likely to see the tax scaled back at least somewhat.
Health-information-technology companies got a boost from the stimulus package passed earlier this year, which contains about $20 billion in funding. All of the health-overhaul bills call for new investments in electronic health records and other steps to modernize the system. But the Senate Finance bill doesn't include additional money or make clear how the new legislation is related to the economic stimulus.
Peter Neupert, corporate vice president of Microsoft Corp.'s Health Solutions Group, which provides software for about 100 hospitals, said the challenge will be how "they connect the dots" between the plans.
Write to Janet Adamy at janet.adamy@wsj.com and Greg Hitt at greg.hitt@wsj.com