In a report from Gavin Magor, The Street.com Ratings Senior Analyst, Insurance-company stocks have risen on speculation that health care reform will kick the  bucket.

Magor is the senior analyst in charge of assigning financial-strength ratings to insurance companies.

However, if you give it some thought, the opposite should be happening. Health reform would open to the doors to some 46-million Americans who need health care. This will widen and enlarge the companies’ customer base, and, for the most efficient insurance companies, substantially higher profits.

The House and Senate health care bills call for the biggest changes in 40 years. Both would extend coverage to tens of millions of uninsured Americans while curtailing costs. They also would extend the Medicaid program for the poor and put restrictions on insurers.

Republican Scott Brown’s surprise victory in the Massachusetts Senate race endangers President Barack Obama’s health care plan, a centerpiece of his presidential campaign.

Health-insurance companies’ margins are about the slimmest of any business in America. Operating margins are about 2% — for every $100 in revenue, only $2 is earned. Companies that dominate a region are able to charge more, and their margins increase to about 3%.

WellPoint’s margin was 7.9% in the first half of last year. Increased membership and reduced medical expenses have widened profitability.

In contrast, smaller rival Aetna has a projected margin of only 1.8%.

UnitedHealth Group, which has 70 million customers in the U.S., would stand to gain from an increased number of members. A total of about 46 million Americans currently have no health insurance.

The U.S. health care industry is massive, with total premiums of $450 billion. Reform would have boosted the size of the sector, leading to a potential average increase in premium income of about 20%.

Not everyone will be happy. Reduced rates for Medicare would hurt some companies.

Insurance companies such as Humana, among the largest Medicare providers, would need to adjust costs and expenditures. Many insurers in the industry have demonstrated they’ve been able to stay profitable during the recession by reining in and maximizing dollar costs.

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More Power To Us,

Erwin Chua

Consumer Advocate

The Life Insurance Quotes For Consumers Blog

“Insurance is Personal”

Source: TheStreet