How You'll Benefit From Health Insurers' Supreme Sacrifice

For years, health insurance companies have gotten tons of criticism from policyholders and consumer rights advocates, arguing that their pursuit of profits leads them to make inhumane decisions. Yet with a Supreme Court decision on health-care reform expected later this month, several health insurance companies appear to be voluntarily committing to keep offering some of the expanded benefits called for under the law -- even if the law gets struck down.

Already, some of the groups that have been most aggressively against health insurance companies have praised the moves. But investors would be reasonable to ask whether voluntarily offering benefits they don't have to offer is a bad move, or an ingenious, low-cost way to gain favor from their formal rivals.

What insurers are doing
In recent days, some health insurers have come out in favor of keeping several key provisions of policies added under health-care reform. UnitedHealth Group (NYS: UNH) , for instance, expects to maintain free preventive care, continue to allow children up to age 26 to stay on parents' health insurance plans, and maintain unlimited lifetime benefit provisions. It also plans to keep its less complicated process under which policyholders can appeal denials of claims, and except in cases of fraud will not summarily rescind policies.

Humana (NYS: HUM) expects to match the coverage provisions that UnitedHealth is keeping. Similarly, Aetna (NYS: AET) will keep preventive coverage and young-adult provisions while having outside reviews to appeal claim denials. Meanwhile, some other insurers, including Cigna (NYS: CI) and WellPoint (NYS: WLP) , plan to wait until the Supreme Court announces its decision before taking definitive action.

What insurers aren't doing
The key element of health-care reform, however, isn't one that insurers are willing to take on voluntarily. Allowing people with preexisting conditions to obtain insurance is a stumbling point because insurers fear that without the reform law's individual mandate, healthier individuals will avoid getting coverage under their plans, driving up costs for those who have little choice but to take whatever coverage is available.

Already, many people who lack coverage from their employers face a similar situation. With individual coverage remaining very difficult to get from insurers in many states, some people have to resort to risk pools as insurers of last resort. Premiums are often extremely expensive under such pools, costing much more than similar coverage under employer-based plans, even when employers don't subsidize premiums for their workers.

By contrast, if everyone is required to get health insurance, then the market becomes more affordable to insure. In effect, healthier individuals end up subsidizing those with health problems. Moreover, since people can't game the system to go without coverage until they have a serious medical condition, most individuals would end up with a more even cost/benefit balance over their lifetimes -- with many people paying more than they use in benefits during their younger healthy years in exchange for getting more in benefits than they pay in premiums once they get older and less healthy.

Should shareholders support this?
Shareholders may be leery of watching their companies give away benefits that were part of the health-care law. But most analysts agree that with the exception of pre-existing condition coverage, the benefits that insurers are committing to providing add relatively little cost.

More importantly, the essential element is often whether insurance companies try to undercut each other by offering cut-rate policies without those coverage features. The fact that several companies have announced very similar moves suggests that they're willing to follow the industry line -- and that could end up being a more profitable situation for all of them.

Keep your eyes open
Even with insurers taking these steps, the Supreme Court's decision on health-care reform laws could change everything, and not just for investors in health insurance stocks. With health-care costs still representing one of the largest expenses for retirement, it's essential for you to get a grip on how health-insurance reform will affect you and what your options are regardless of what the Supreme Court may decide.

But preparing for retirement isn't just about managing health-care costs. You need to invest right as well. Read about some stock ideas tailor-made for retirement investors in the Motley Fool's special report on long-term investing -- just click here and start reading your free copy right now.

At the time thisarticle was published Fool contributor Dan Caplinger is thankful to his wife every day for her employer's health insurance. He doesn't own shares of the companies mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of WellPoint. Motley Fool newsletter services have recommended buying shares of WellPoint and UnitedHealth Group, as well as creating a diagonal call position in UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy insures your satisfaction.

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