Top Trends in the health insurance markets

Here are the top trends in health care as I see them, using the actuarial method of looking back over my shoulder to see what happened, and thereby predicting the future with confidence.
1. More consolidation amongst health insurers.
Many years ago (say, 8 or so) industry pundits were predicting that the health insurance industry would consolidate to a handful of large players, an oligopoly if you will. 2004 has added a lot of credibility to that argument, with Anthem-Wellpoint, Coventry-First Health, and United Healthcare-Oxford three of the more significant. The rationale behind these mergers is classic business school stuff – it is a mature industry, with limited growth opportunities, thereby favoring those companies with market power, economies of scale, and lots of capital/ready access to capital to grow by acquisition.
Expect more of the same in 2005.
2. The return of the hospital
Hospital expenses are the single most powerful driver of overall health care inflation, and they are showing renewed power. Weak hospitals, marginal managers, and bad business concepts have been driven out by the brutal forces of competition and reimbursement, leaving leaner, smarter, more aggressive institutions hardened by years of bargaining with managed care companies.
For now, hospitals hold the upper hand, and managed care firms are having a much tougher time at the negotiating table.
Expect this to remain the case throughout 2005.
3. Cuts in Medicaid and Medicare
Mr. Bush’s desire to reduce federal expenditures over the long term will result in significant changes in these behemoth programs. Health care costs are a huge portion of the federal budget, and present an attractive target to those focused on cutting deficits. Some of this is already apparent in the (latest) strident campaign to cut out “waste and abuse”.
There will very likely be tough cuts in hospital and physician reimbursement over the next two years, and perhaps a drastic overhaul of Medicaid in the form of block grants to states rather than the present “defined benefits” program model. When CMS shudders, the rest of the health care community quakes. These providers will look to recoup their lost revenue from somewhere…
Expect a very heated battle, with Bush et al eventually pushing through a drastic overhaul of these two “Great Society” programs.