While the short-term outlook is solid, the report notes:

Longer-term, however, health plans face broad profit pressures largely tied to healthcare reform.  These include rebates, taxes and participation in low-margin insurance exchanges.  Even without reform, health plans continue to face a variety of structural issues that hamper long-term profit prospects – including deterioration of fully funded membership and the shift toward low-premium high-deductible health plans.  The advent of ACOs also threatens the relevance of health plans by diminishing the industry’s central role in managing risk.

One bright spots is Medicaid, with states turning to managed care plans to control costs and because of expanded eligibility under reform.  Dual eligible are also expected to be an area of membership growth for managed care.  Fully funded commercial membership is expected to be flat to down.

He cites long-term CBO projections that the primacy deficit (which excludes interest payments) will bottom out at 2.6% of GDP in 2018 and then rise to 7.4% by 2040.  The entire increase will come from rising healthcare costs. Notes Blinder:

We have a huge problem of exploding health-care costs, part of which show up in Medicare and Medicaid spending.

Other “deficit myths,” Binder argues, include the notions that Americans are demanding deficit reduction like never before (they’re not, he says) and that the deficit problem is so acute it requires immediate spending cute despite the bad economy (it isn’t, he says).

Additional details available here.

The question is what does this say about premium price competition?  Citi notes:

There’s no question premium rate increases will be lower in 2012, in part driven by more aggressive Blue Cross pricing. That said, plans are still pricing above the current cost trend, so provided utilization remains low, margins at the publicly traded plans can still improve in 2012.

Carl Mercurio
President, CRG

One of the more noteworthy takeaways from our survey is that compared to last year, fewer employers are considering migrating their employees into the new Exchanges starting in 2014. Specifically, 11% of employers in our survey are actively considering migrating employees into exchanges in 2014, down materially from 35% that said they are considering shifting employees into the Exchanges in 2014. Note that our industry market model currently assumes that around 10% of the employer market will shift into the Exchanges in 2014, so current employer sentiment appears to be exactly in line with our industry forecast.

We think the drop-off in interest in the Exchanges likely reflects the generally disorganized state of affairs around Exchange planning at both the state and federal levels, which has created significant uncertainty around the path to implementation of the Exchanges in 2014.

All of which could put pressure on health plan profits in 2012.  Deutsche Bank projects that the spread between pricing and costs will tighten to 50 basis points in 2012, compared to 190 basis points in 2011.  In other words, health insurance will be a riskier business next year will less room for error.

Based on the findings, Deutsche Bank has downgraded Coventry and Health Net shares to sell from buy, “given their higher exposure to the Commercial risk market.”  Deutsche Bank continues to rate as buys Aetna, Amerigroup, Cigna, Magellan, UnitedHealth and WellPoint.

Deutsche Bank surveyed 432 self-insured and fully funded employers offering 628 unique plans.

1. Allina Hospitals & Clinics
2. Atrius Health Services
3. Banner Health Network
4. Bellin-Thedacare Healthcare Partners
5. Beth Israel Deaconess Physician Organization
6. Bronx Accountable Healthcare Network (BAHN)
7. Brown & Toland Physicians
8. Dartmouth-Hitchcock ACO
9. Eastern Maine Healthcare System
10. Fairview Health Systems
11. Franciscan Health System
12. Genesys PHO
13. Healthcare Partners Medical Group
14. Healthcare Partners of Nevada
15. Heritage California ACO
16. JSA Medical Group, a division of HealthCare Partners
17. Michigan Pioneer ACO
18. Monarch Healthcare
19. Mount Auburn Cambridge Independent Practice Association (MACIPA)
20. North Texas Specialty Physicians
21. OSF Healthcare System
22. Park Nicollet Health Services
23. Partners Healthcare
24. Physician Health Partners
25. Presbyterian Healthcare Services – Central New Mexico Pioneer ACO
26. Primecare Medical Network
27. Renaissance Medical Management Company
28. Seton Health Alliance
29. Sharp Healthcare System
30. Steward Health Care System
31. TriHealth, Inc.
32. University of Michigan