The U.S. Health and Medical Insurance industry is an intricate part of the U.S. economy. According to the Centers for Medicare and Medicaid Services, US health expenditures account for 17.7% of annual GDP. More money is spent per person on healthcare in the United States than in any other nation in the world, according to the World Health Organization. In fact, U.S. health expenditures are greater as a percentage of national income (or GDP) than any other United Nations member state, except East Timor.

According to IBISWorld, in the five years to 2011, industry revenue is expected to increase at an average annual rate of 2.7% to $677.3 billion. During this period, a consistent increase in healthcare expenditure (i.e. medical-cost inflation) has driven growth. As a result, industry profitability has failed to increase during the period. Furthermore, since the beginning of the recession, health insurers have struggled to maintain profit margins. At the same time, the Obama administration has introduced drastic healthcare reforms that aim to slow medical-cost inflation and decrease the uninsured rate in the United States. However, these reforms are not anticipated to take full effect until 2014.

Despite debate over medical-cost containment, health expenditures are expected to be the main driver of industry revenue growth over the five years to 2016. In 2011, IBISWorld forecasts that industry revenue will increase 4.1% from 2010. In the five years that follow, revenue is expected to rise at an average rate of 5.0% annually to $865.8 billion. The majority of growth will likely be associated with medical-cost inflation, but the industry is also projected to benefit from the aging US population. As the baby boomer generation ages, more people will demand and need medical coverage.

Medicare expenditures are expected to increase as the baby boomer generation retires, and growth will come from services related to this government program. At the same time, the private-sector insurance market will benefit from the aging population, with many individuals looking to supplement government coverage with private insurance.

Companies and stocks in this sector to watch include: United HealthGroup Inc., Wellpoint Inc., Humana Inc. and Aetna Inc.

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