TheStreet.com Announces Profit Margin on Medicare Business Up in 2006 as Commercial Business Declines.

TheStreet.com Ratings Upgrades 53 Health Insurers and Downgrades 32

NEW YORK -- The profit margin on U.S. health insurers'1 Medicare business hit 5.7% in 2006 on revenue of $46 billion, up from 4.9% in 2005 on revenue of $35 billion, according to TheStreet.com Ratings' quarterly review

The profit margin on commercial health insurance declined to 3.8% in 2006 on revenue of $172 billion from 4.9% on revenue of $164 billion in 2005. TheStreet.com Ratings' analysis of health insurers also revealed the profit margin on Medicaid business to be 1.6% in 2006 on revenue of $30 billion, down from 1.8% in 2005 on revenue of $26 billion.

The overall industry profit margin in 2006 was 3.9% for all lines of business on aggregate revenue of $287 billion. This is down from 4.4% on $256 billion in revenue in 2005. Total net underwriting income in 2006 was $11.2 billion, down from $11.3 billion in 2005.

"The increase in Medicare margins shown by our analysis primarily reflects the increased revenue stream from the new Part D prescription drug program," said Melissa Gannon, vice president of insurance and bank ratings for TheStreet.com Ratings. "Growing price competition and increasing claims, however, may drive margins down again in 2007, the second year of the program."

On a per member per month (PMPM) basis2, a commonly used industry measure, revenue received by insurers from the federal government for Medicare beneficiaries in 2006 outstripped revenue from commercial customers more than 3-to-1. Likewise, net underwriting income from Medicare business outstripped commercial business 5-to-1.

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"Industry profitability remains historically strong. However, heightened competitive pressure on pricing is starting to affect margins on the commercial business," commented Gannon.

Notable Upgrades and Downgrades

Of the 596 health insurers rated by TheStreet.com Ratings based on year-end 2006 data, 53 were upgraded and 32 were downgraded. Following are the largest institutions with the most significant rating changes. Notable upgrades include:

- Healthassurance Pennsylvania