Insurers Chase Health IT Profits

Health insurers increasingly are diversifying into the growing health IT business to counter anticipated profit losses from their core business, according to a report by The Wall Street Journal.

Insurance profit margins are expected to drop from 7-8 percent to 3-5 percent as federal health care reforms are implemented, the paper says, citing Carl McDonald of Citigroup Investment Research. But the paper says the health IT business has lower overhead than the insurance business has, earning one diversified insurer margins of more than 20 percent on its health IT offerings.

An estimated $27 billion in federal incentives for implementing electronic health records that meet federal "meaningful use" standards helps sweeten the pot for insurers hungering to diversify, the Journal says. The money is driving a guaranteed market for health IT offerings over the next several years.

About 20 percent of insurance company deals since last year involved health IT firms, up from 7 percent in 2007, the newspaper reports, citing a market analysis from FactSet Research Systems.

In one of those deals, Aetna paid $500 million earlier this year for software maker Medicity, whose product securely transmits health information. WellPoint Inc. also recently indicated a desire to diversify into health IT, according to the paper. UnitedHealthGroup Inc. was one of the first health insurers to enter the health IT business, according to the Journal report.