Shares of Health Net Inc. plunged 12 percent Thursday after a Goldman Sachs analyst downgraded it and several other health insurers due to falling profit margins.

Matthew Borsch downgraded the stocks to “sell” from “neutral” and put Health Net on Goldman’s Americas Conviction Sell List. He predicts both Health Net and Aetna Inc. will face lower profit margins in the next few years, which will hurt their earnings. In addition Health Net does a lot of business in areas where growth have slowed.

“Drivers for slowing demand include the consumer-led economic slowdown coupled with significantly higher patient cost-sharing under most health insurance plans today,” Borsch said in a package of reports on the industry released Thursday.

Borsch said increased competition resulting in lower premiums and profit margins is the most important issue facing the industry over the next two years. Pacificare parent UnitedHealth Group Inc. on Wednesday cut its outlook for the second time in recent months. Borsch maintained a neutral rating UnitedHealth shares, but warned that earnings likely will be down 9 percent in 2009, 35 percent below current Wall Street expectations.

Health Net shares were down $3.06 to $22.58 in mid-morning trading on the New York Stock Exchange.