SOURCE: Bellwether Report

Bellwether Report

March 22, 2010 10:23 ET

Healthcare Jostling With the Stability

JOHANNESBURG, SOUTH AFRICA--(Marketwire - March 22, 2010) - -- The spectacular government intervention in late 2008 to bail-out America's largest insurer AIG indicated that the insurance industry is not by the least immune to market risks. In light of this, European counterparts have taken precautionary measures and decided to raise capital to prepare for the worst. In time of financial turmoil, the trend is quite palpable in the insurance business; insurance buyers' frugality will be widespread and fraudulent claims will be on the rise. "It is quite natural for insurers to apprehend that the number of fraudulent claims may augment all together. The latest figures already began to indicate the surging trend in the US. Two of the most popular claims under strict scrutiny are vehicle fires and slip-and-fall accidents... those have gone up drastically and the possibilities of fraud here can be staggering," commented George Turner, senior analyst at

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However, the general insurance industry has been marginally affected by this time in spite of several claims for major causalities. The list includes Humana Inc. (NYSE: HUM) and Coventry Health Care Inc. (NYSE: CVH). The finance sector has managed to stay unaffected by the insurance industry. The insurance industry has performed well during these tough times mainly because people have realized that insurance is an economic necessity, not a discretionary purchase. Apart from that, the construction and automobile manufacture industry has declined. Nevertheless the renewal business will provide a reasonable growth for the insurance exposure.

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Humana group plans to bring on the premiums and adjust the same into benefit designs in its government products -- especially in to its Medicare prescription drug domain, succeeded in 2009. The Management is making continuous growth in diverting its Medicare Advantage members towards network-based PPO and HMO products due to the disbandment of the private-fee-for-the service program in 2011. Of the company's fully insured MA members, 71% are now in network-based products, up from 46% at the end of 2007. Management's long-term goal is to drive its own costs to a level that is 15% below the costs of original Medicare.

We agree that a feat of this magnitude will be necessary for Humana's Medicare Advantage business to maintain healthy margins as favorable reimbursements are removed over the next several years, although we remain skeptical about the company's ability to fully accomplish its goal. In other news, the Department of Defense has informed Humana that it intends to take corrective action in response to the Government Accountability Office's decision to uphold Humana's protest of the Tricare contracting process. Get more on Humana Inc. by signing up for a free membership at

Coventry Health Care Inc. reported robust performance with the cost cutting efforts and increase in the membership rate has supported the bottom-line. The Company's Medicare Advantage membership saw an increase of 135,000 in its membership base from the past year. Medicare Advantage CCP membership also felt the inclination in its membership cadre by 49,000 members from the previous year. The Medicare Advantage MLR went down by 150 basis points from the prior year quarter. The contribution of the Medicare Advantage PFFS product line was on the $0.06 per diluted share in the fourth quarter. After the clubbing of the contribution of $0.07 per diluted share which was reported in third quarter, the total summation from the Medicare Advantage PFFS product line was $0.13 per diluted share for the year 2009.

For concentrating on its core business it has completed the divestiture of a non-core business, First Health Services Corporation (FHSC), during the third quarter of 2009 and it has strengthened its operational efficiency through entering into an acquisition agreement for Preferred Health Systems, Inc. ("PHS"), a wholly owned subsidiary of Via Christi Health System Inc. Register now at to have free access to this report.


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