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By Sara Hansard
Most U.S. health insurers are on track for continued strong earnings in 2017, although the individual market is continuing to lose money, S&P Global Ratings analysts said Aug. 10.
UnitedHealth Group Inc., Aetna Inc., Humana Inc., Anthem Inc., Cigna Corp., and WellCare Health Plans Inc. have all raised their earnings guidance for 2017, James Sung, an associate director, said in a webinar on U.S. health insurance trends. Centene Corp., which operates Medicaid health plans, is one of the only major companies on the exchanges that is outperforming the market, he said. Molina Healthcare Inc., a Medicaid managed care company, is one of the few health insurers that is underperforming relative to market expectations due to unprofitable Affordable Care Act exchange plans, he said.
The webinar highlighted the importance of large group business for commercial insurers. The individual market, which has been changed significantly by the Affordable Care Act, is the most volatile part of the health insurance business, but 2018 is likely to be the first year when companies make a profit on average in the exchanges, Deep Banerjee, director and sector leader, said.
UnitedHealth is experiencing “good, broad-based growth at UnitedHealthcare as well as Optum, their services business,” Sung said. The company, the largest U.S. health insurer, is expanding its primary care, urgent care and ambulatory care businesses, he said.
Although proposed mergers between Humana and Aetna and between Cigna and Anthem were blocked in 2016 by the Obama administration Justice Department, “these companies were very successful prior to their merger proposals and they’re doing quite well,” Sung said. Aetna and Humana have strong Medicare businesses, and Cigna plans to grow its international business, he said.
Centene has been very successful at diversifying its business, Sung said. WellCare is focused on growth and has acquired some companies, he said.
The commercial group market is the “bread and butter for many of these companies,” Sung said. The market is “highly competitive,” but their pricing “appears to be pretty disciplined. These companies are having success pricing ahead of trend,” or medical inflation, and medical cost trends are “relatively stable,” he said.
Congress enacted a moratorium on the ACA health insurance providers’ fee for 2017, which is “a big tailwind for them,” Sung said. But while some health insurers report some improvement for the second quarter, “there’s still a lot of concern about the rest of 2017" due to political and regulatory uncertainty, he said.
“If consumers at the end of the year are unsure about their health-care coverage for next year, that could potentially drive utilization up, and a cost-trend problem,” Sung said. For 2018, most of the large public companies will either fully or partially exit from the ACA marketplaces, with the exception of Centene, which is expanding to several new states as well as within the states in which it already operates, he said.
Medicare continues to be a good diversification segment for Anthem, United, and Aetna as the number of baby boomers entering the government health-care program continues to grow and the companies get additional reimbursement by earning higher star ratings, associate director Hema Singh said.
Medicaid managed care is a “mixed story,” with profit margins holding in the 2 percent to 4 percent range for established Medicaid plans, Singh said. But insurers in states that recently shifted Medicaid programs to managed care have experienced more losses, she said. She cited Iowa, where she said insurers lost more than $400 million in 2016 and are still losing money in 2017.
North Carolina recently announced a plan to move into Medicaid managed care, Singh said. It is one of the largest states with about $13.5 billion in that market, and unlike Iowa, North Carolina will hold back on moving special needs recipients into the program, she said.
If administrative services fees insurers earn for operating group plans are excluded, over 60 percent of risk-based premiums are linked to the government programs such as Medicare, Medicaid, the ACA exchanges, and the Federal Employees Health Benefits Program, Banerjee said.
The share of government business has been growing over the past two years due to increased penetration of privately run Medicare Advantage plans, the ACA exchanges, and the ACA’s Medicaid expansion, Banerjee said. With the recent changes in the individual market leading to more volatility, Medicare is the best growth opportunity for health insurance, he said.
Blue Cross Blue Shield plans, which are the largest players in the ACA exchanges, continued to lose money on the plans in 2016 following losses in 2015, Banerjee said. The companies in the exchanges are likely to be “close to break-even” in 2017, and 2018 is likely to be the first year when companies make a profit on average in this line of business, he said.
Most Blue Cross Blue Shield plans, which have target profitability at a low range of zero and 2 percent, are likely to continue in the exchange markets, Banerjee said. Individual BCBS companies aren’t national companies, and “for them the local market is of great importance,” he said.
However, “the uncertainty that we are seeing with regulation will impact their decision-making” in terms of requested premium hikes, he said. Of particular importance is the government’s funding of cost-sharing reduction subsidies that insurers are required to provide for low-income enrollees under the ACA, as well as enforcement of the ACA’s individual mandate requiring people to buy qualified coverage, he said.
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A replay of the webcast, U.S. Health Insurance: Earnings, Regulation, and Credit Update, is available at http://ratings-events.standardandpoors.com/content/US_FI_Event_Webcast_HealthInsAug2017.
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