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AIS's Health Business Daily
Featured Story April 28, 2008 While Not Immune to a Volatile Market, Not-for-Profit Health Plans Are Less at Risk in Economic Downturns Than Their For-Profit CounterpartsReprinted from HEALTH PLAN WEEK, the industry's leading source of business, financial and regulatory news of health plans, PPOs and POS plans. By Chris Meehan, Associate Editor, (cmeehan@aispub.com) Not-for-profit health plans are not affected by economic downturns in the same way as their for-profit counterparts but that's not to say they are completely immune to volatile financial markets. While the investments of not-for-profit insurers tend to be less prone to market fluctuations, if the economy's woes extend through 2008, lowered interest rates on investments could impact premiums in 2009. Not-for-profit health plans will likely see some negative effect from lower interest rates, says Oppenheimer & Co. equities analyst Carl McDonald. Those insurers, he explains, tend to rely more on investment income for pretax profits. The vast majority of investments "are fine," which means the lower rates won't have much of an impact this year, he says. "But the decline in investment income "will be a factor in their pricing decisions next year…in terms of raising premiums to compensate for lost returns." The investment portfolios of not-for-profit Blues plans, for example, are made up largely of fixed-income securities, adds Aaron Vaughn, a securities analyst in the St. Louis office of Edward Jones. And because fixed-income yields are low, it is affecting them." Diversified Investments Limit Losses BlueCross BlueShield of Tennessee (BCBST), CareFirst BlueCross BlueShield, Highmark Inc. and The Regence Group tell HPW that their diversified investment portfolios have helped temper the impact of a struggling stock market. The insurers also say that because they are not heavily invested in the subprime mortgage market, the effect of its implosion has been limited on their investment results. The Tennessee Blues plan is "focused on holding liquid, high-quality securities, with an emphasis on shorter-duration assets," says Alaine Zachary, director of investments and assistant treasurer. In the current investment environment, BCBST "was also fortunate to have a material allocation to TIPS [i.e., Treasury Inflation-Protected Securities available from the U.S. Treasury], which has helped to protect the portfolio during the recent downturn," she says. Likewise, CareFirst continues "to invest in extremely high-quality securities and maintain a well-diversified portfolio," said spokesperson Michael Sullivan, who asserts that the insurer has not been "materially impacted" by recent market events. Regence will stick with its current investment policy "despite the recent short-term volatility within the markets," says Andreas Ellis, director and assistant treasurer at the company. He says the company believes "that a long-term perspective needs to be applied to our asset allocation." He adds that the allocation needs to emphasize diversification, liquidity and high quality. Highmark rebalanced
its investment portfolio in 2007, "as we do periodically,"
says plan spokesperson Michael Weinstein. The rebalancing brought higher
net realized gains in 2007 compared with those in 2006, "resulting
in better than anticipated investment income in 2007." But he adds
that the plan anticipates that investment income in 2008 will be lower
than in 2007. |
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