A.M. Best Special Report: Consolidation Squeezes Growth in Commercial Health Market

Business Wire, Oct 16, 2007

OLDWICK, N.J. -- Stiff competition in the commercial health insurance market has continued to stifle growth in the sector, as employer groups consolidate through mergers and acquisitions and reduce the number of health plans offered. Meanwhile, Medicaid managed care and Medicare Advantage products have experienced very strong growth, according to a special report by A.M. Best Co.

* Growth in medical membership (excluding Medicare stand-alone prescription drug plans) slowed to 2.9% year over year for U.S. health insurers in the 12 months through June 2007 compared with the previous 12 month period.

* Total revenue grew 11.3% to $122.8 billion for the first six months of 2007, reflecting increased premium rates and growth in membership.

* The average medical loss ratio for the publicly traded companies increased 40 basis points over the first half of 2006 to 82.4 as a larger portion of business shifted to more costly government funded plans such as Medicaid and Medicare.

* Experience on the Medicare Part D business is expected to improve during the second half of the year, when individuals enter the "doughnut hole" and become responsible for their out-of-pocket amount of prescription drug costs.

* The administrative expense ratio improved by 70 basis points due to efficiencies created by higher enrollment, among other factors.

* Operating income rose 11.8% to $11 billion in the first six months of 2007, and net income grew 10.7% year over year to $6.1 billion in aggregate, or $512 million on average.

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Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.