Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):
After Streak of Strong Profits, Health Insurers May See Decline
Summary: Last year, the big health insurers saw remarkable profit growth as they raised premiums higher than underlying medical care costs grew. But as smaller insurers drop coverage due to the quickly rising costs, the insurers are caught between a rock and a hard place: if they lower costs to recover customers, they'll get caught in a price war and investors will dump their stock. That's precisely what happened twice this year to Aetna - following both quarterly earnings reports, its stock sold off heavily upon fears that the company will hold back on premium increases. WellPoint and others have stated that they would rather lose membership than cut premiums and profit margins, but there's only so far they can go before losing too much of their customer base, analysts state. Aetna acknowledges that it will fall 17% to 30% short of its original target of one million new members this year. One possible solution lies in giving consumers more data on price and quality, steering them toward cost-effective care.
Comment on related stocks/ETFs: Aetna's now trading at a forward P/E of just 10, while WellPoint and UNH are closer to 14.