Protected: April 26, 2010 The Practical Boundaries of Health Insurance Regulation
Protected: April 22, 2010 Quick Thoughts: Lower Subsidies Will Delay Handset Recovery
Protected: April 20, 2010 A Thousand Paper Cuts: The Future of Cable TV
Protected: April 19, 2010 Why the Market Assumes too Much Margin Pressure on Insurers, too Little on Innovators
Protected: April 5, 2010 The National Broadband Plan: Windfall for Wireless, but Catastrophe for Carriers
April 5, 2010 Why Insurers Work in a Recovery; Introducing our Model of Private Insurance Premiums and MLRs
Insurers are better levered to economic recovery than other healthcare subsectors. Health insurance demand is more elastic than healthcare demand, meaning premiums accelerate faster than healthcare product and service sales. And job gains boost enrollment, growing total premiums, and lowering medical loss ratios (MLR) by improving risk pools. Despite this, on the doorstep of a widely anticipated recovery, insurers trade at a 20+% discount (PE) to healthcare, and a 25+% discount (PE) to the SP500
Our MLR model correctly predicts the timing of 80 percent of MLR peaks and troughs since 1960; 93 percent if we include predictions that were one year early. Troughs occur when employment is growing and/or medical inflation is decelerating; peaks come when employment is falling and medical prices are accelerating. Our model suggests we are at or near peak MLR (we believe we are past an ’09 peak); further reason to favor health insurers, particularly at current discounts
Of note, the fact that 40+ years of MLR cyclicality is almost wholly explained by shifts in employment and/or medical inflation suggests that a classic explanation for MLR cyclicality − price competition among insurers − is incorrect
Before considering enrollment gains from 2014 reform provisions, we project 3.6 percent real premium growth from ’09 – ’14, and 3.4 percent real growth from ’15 to ’19. On top of this, we expect reform associated enrollment gains will expand total private insurance premiums 5 to 10 percent by 2019 from an ’09 peak, we expect MLR’s to decline by an aggregate 1.3 percent by 2019 as employment gains improve the risk pool, and as insurers price in the incremental risks associated with pending underwriting restrictions
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