OneBeacon Insurance Group, Ltd. Business Reports

Demand for health insurance products is driven by the rising costs of medical care. The profitability of individual companies depends on efficient operations and the ability to negotiate favorable contracts with health care providers. Large companies and organizations have advantages in negotiating contracts with health care providers. Small companies can compete successfully by providing special coverage plans as part of government programs such as Medicaid, or for specialized populations. The industry is highly automated and capital-intensive: annual revenue per employee is close to $1 million. The enactment of the Patient Protection and Affordable Care Act (PPACA) of 2010 is just beginning to effect the way managed care companies operate. The PPACA calls for health care coverage to be available for all Americans beginning in 2014; the law also eliminates some common exclusions, such as pre-existing conditions. Managed care companies will also compete for customers in state-run health exchanges, where small companies and individuals can buy health care coverage. Reductions in Medicare and Medicaid reimbursements also are likely as regulations in the new law tighten coverage and payment rates.