STATE OF THE INDUSTRY

Consolidation has slashed the number health insurers since 2001. Of the top 10 insurers in 2003, only six remain. UnitedHealth acquired Oxford Health in 2004 and PacifiCare in 2005. WellPoint, born of the merger of Anthem and WellPoint Health in 2004, folded WellChoice into the group in 2005. UnitedHealth and WellPoint jump-started their consumer-driven plans with the former picking up Definity Health and the latter buying Lumenos.

With premium increases outpacing costs since 2001, insurers have seen strong profits, but medical cost ratios now appear to be rising. In addition, pressure in the industry is building as employers threaten to abandon their health plans if premiums continue to increase while shareholders demand high earnings. If employers continue to withdraw from the market, particularly smaller employers who do not self-insure, the insurers will increasingly turn to Medicare and the huge pool of uninsured Americans to secure new revenues.

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