Is it just me, or is anyone else getting tired of all the poor-mouthing by the quite profitable health insurance industry?
After posting hefty profits in 2012, the publicly traded health plans have released pretty darn good first-quarter earnings and most even upped their forecasts for the year. Aetna, Cigna, Humana and UnitedHealth Group reported profit margins in the 5 percent range, good by insurance industry standards (a few years ago they averaged in the 3 percent range). For UnitedHealth, that amounted to $1.24 billion, or a 4.09 percent margin. And, by the way, their stock prices are up.
Lest we all forget that the terrible, horrible, very bad Obamacare is about to spoil everything, health plan executives continue to offer dark, brow-furrowed warnings about the grave dangers ahead in 2014. You know, when Obamacare mandates that about half of uninsured Americans (25 million or so) must obtain their companies commercial products and subsidizes the purchase of insurance for low-income people.
Obamacare also expands Medicaid and, via U.S. taxpayers, indemnifies the plans on the state healthcare exchanges so that they don't have to worry about excess risk. Dreadful, that.
And yes, Obamacare sets up the exchanges and the transparency and the regulations to assure that consumers have a fighting chance of knowing what they're buying. Tsk.
To listen to some of the health plan executives talk, though, it's as if they expect Obamacare to swallow them whole. They warn of 20 percent-plus increases in commercial premiums as if they are inevitable. State healthcare exchanges are spoken of as more risk than opportunity.
In their quarterly Q-and-A with stock analysts, executives for each of the major commercial players said they intend to be very choosy in their exchange participation, will price their plans conservatively to preserve their profits rather than try to gain lots of new members, and will only stay in exchanges where they make their desired levels of profit.
Sure, the health plans hate the regulation of their products margins all good capitalists prefer unlimited profit. And they hate the idea of having to insure the sick on the same terms as the healthy, because the cherry-picking model has worked so well for them in the past. And they don't like the new taxes. We get that. And yes, there's the uncertainty over whether these exchange operations will work smoothly or become some new circle of bureaucratic hell. That's a legitimate and widely shared concern.
But there's also ample evidence that the health insurance industry has an incredible opportunity ahead. What Obamacare has done imperfectly is accelerate the evolution of the healthcare delivery system by prompting investment in healthcare IT, pushing healthcare toward outcomes-based contracting, and forcing payers and providers to work towards continuity of care and treatment of chronic illness. Overall health spending growth is trending downward, as is utilization and analysts say this is not just a result of the economy any more. It may be that the cost curve is starting to bend.
Humana CEO Bruce Broussard has credited his company's investments in chronic care and integrated care delivery for bringing down medical costs. The company's overall medical loss ratio the proportion of premiums spent on medical care declined sharply, from 85.4 percent in the first quarter of 2012 to 83.0 in the first quarter 2013. Other insurers are crediting better network arrangements, backed by systems that enable and reward physicians work toward better care management, for moderating healthcare costs.
Aetna, Humana and others are banking on these arrangements to create tiered-network and narrow-network products they can offer at a lower price-point. UnitedHealth continues to grow its medical services businesses and form its own provider arrangements. United's CEO told Wall Street analysts that it expects the company's commercial benefit businesses, Medicaid and military businesses to perform well in 2014.
It's worth noting, also, that the executives of the Medicaid specialty plans, Centene and Molina, strike a noticeably more optimistic tone than their commercial plan brethren. Accustomed as they are to government strictures, lower margins and having to cover all comers, their take on 2014 is much different. Molina is looking forward to participating in the healthcare exchanges of all 10 states where it holds Medicaid contracts, providing continuity of coverage to those who move in and out of Medicaid eligibility.
"We view the Medicaid expansion component of the ACA as a natural extension of our core
business. While not every state will go through with the expansion, we estimate that there is
approximately $20 billion opportunity across our existing markets. . . . The exchange market
represents the largest growth opportunity for Centene over the next several years, said Centene CEO Michael Neidorff.
The fact is that the Accountable Care Act continues to bring disruptive change, risks and opportunities to a healthcare industry that previously was tethered to an unsustainable system. The new paradigm is chock full of both risk and reward, and the plans are very good at maximizing the rewards.
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