Fourth Annual Wall Street Comes to Washington:

Originally published by the Center for Studying Health System Change (HSC). HSC was a nonpartisan policy research organization funded principally by the Robert Wood Johnson Foundation.

Fourth Annual Wall Street Comes to Washington: Analysts' Perspectives on Health System Change

Conference Transcript | June 9, 1999

HSC's fourth annual Wall Street roundtable brought together financial analysts who specialized in health care companies to share their perspectives on the state of the industry and the forces shaping it. The event assembled professionals whose jobs required them to understand the full competitive landscape -- from supplier strategies and customer behavior to regulatory developments and technology trends. Their insights complemented the data HSC gathered through its community surveys and site visits.

The Insurance Underwriting Cycle

The discussion opened with an update on the insurance underwriting cycle. Warburg Dillon & Read's Geoffrey Harris reported that plans had been very successful at increasing premiums, pointing to CalPERS' recent acceptance of 9.7 percent rate increases for 2000. Harris predicted that premium trends would continue rising into 2001 and possibly 2002, widening profit margins substantially before the cycle eventually reversed as new entrants and competitive pricing resumed. "Right now I think we're in the fairly early stages of a big upswing in premiums and margins and profitability in the industry," Harris said.

Alliance Capital Management's Norman Fidel estimated the effective 1999 premium rate increase at 6 to 7 percent nationwide, noting that benefit buydowns added another 1 to 2 percentage points of effective increase. The tight labor market was enabling employers to absorb higher costs rather than cut benefits, since they needed to compete for workers. Blue Cross/Blue Shield plans and Kaiser were already posting premium increases above 8 percent, signaling the end of the downward cycle.

Providers Struggle Despite Rising Premiums

While premiums climbed, providers were not sharing in the gains. Plan payment rates to providers were rising only about 2 percent -- well below the premium increases being charged to employers. Most providers lacked the bargaining power to negotiate better terms, a problem compounded by oversupply in many markets. Underlying health care delivery costs were growing at roughly 5 to 7 percent annually, fueled by consumer demands for broader choice and easier access. The BBA's impact on Medicare payments was proving devastating, particularly for post-acute care providers like skilled nursing facilities and home health agencies.

The roundtable was moderated by HSC President Paul B. Ginsburg. Panelists included Karen Boezi of Coral Ventures, Norman Fidel of Alliance Capital Management, Geoffrey Harris of Warburg Dillon & Read, and Patricia Widner of Deerfield Management. Joy Grossman of HSC moderated the public policy segment of the discussion.

Sources and Further Reading

Kaiser Family Foundation -- Employer Health Benefits Survey -- Annual data on employer-sponsored health insurance.

Health Affairs -- Peer-reviewed health policy research.

Robert Wood Johnson Foundation -- Health policy research and programs.