INSURER-EXCHANGE ALIGNMENTS Despite Lower Earnings, Carriers Willing to Roll Dice on Public Exchanges BY: BRUCE SHUTAN OCTOBER 2, 2014 INSHARE With another open-enrollment season looming for public health insurance exchanges, it’s reasonable to expect that many of the nation’s leading health insurance carriers must be wondering if their investment in this emerging marketplace is worth the risk. Anemic second-quarter 2014 earnings were reported this summer amid mounting concerns about higher costs associated with HIX enrollees. A snapshot includes Humana, whose shares fell 6.5% on a lower-profit announcement, as well as declines at Aetna (3.8%), UnitedHealth Group (2.7%), and Cigna and WellPoint (1.9% apiece). While unable to address how each of these carriers specifically views its HIX strategy, America’s Health Insurance Plans spokesman Brendan Buck notes that “more plans are entering the market this year.” Indeed, the U.S. Department of Health and Human Services estimates that 77 new health insurance carriers will offer HIX coverage in 44 states for 2015 – a 25% INCREASE, according to the preliminary data. A McKinsey Center for U.S. Health System Reform report also predicts a similar influx of HIX carriers in 41 states that were studied. Still, there’s no escaping that the public exchanges were somewhat of an albatross for leading insurers in the first year of their creation. For example, Humana tied its higher costs in part to medical spending by new HIX enrollees, but expects to break even in this emerging market during the coming year. Aetna also cited higher costs of covering HIX patients as a culprit for eroding profits, though it plans to increase its HIX profile – bullish about the prospects for Medicaid EXPANSION. Mark Bertolini, the carrier’s chairman and CEO, credited “ACA expansion” with adding 45,000 of Aetna’s 79,000 new Medicaid health plan members in the second quarter. Morningstar Research analyst Vishnu Lekraj says the HIX market is far less profitable “on a percentage basis than the historical core employer products that many of these firms built their businesses around.” The reasons, he says, include heavier underwriting restrictions, and stiffer competition spurred by greater transparency and better comparison-shopping opportunities that give consumers more power, as well as capped medical loss ratios. Noting that 2015 premiums on the exchanges still haven’t been etched in stone, Lekraj sees growing pressure to increase prices by a fair amount in certain cases. He predicts that nearly every single HIX market will be less profitable for carriers than commercial markets over the longer term for various reasons. But Lekraj hastens to add that insurance companies are sophisticated, publicly traded companies that will re-format their product offerings “so that they’re profitable at the end of the day.” Lekraj wrote a series of reports over the past few months gauging the competitive chances of several major health insurers succeeding on the public exchanges. His analyses of HIX expansion opportunities is bullish for Aetna and Cigna, and he’s also sanguine about Humana’s growth potential if the insurer can lower its centralized operating cost structure. Lekraj cautioned that while UnitedHealth Group “possesses material competitive” strength, its industry-leading Medicare Advantage and Medicaid businesses “could prove to be a drag on operations.”
Posted on: Fri, 10 Oct 2014 02:29:12 +0000
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