If you want to understand the profit potential of the Affordable Care Act - without the obscurant of any political lens ? just follow the money. Look at what the publicly held insurers ? cold-eyed healthcare capitalists all - are doing relative to the state healthcare exchanges, for example. Are they lining up to participate, or running away?
The answer is: both. The federal government has built in three layers of protection from excessive risk, creating an opportunity to build market share in a growing individual market. But the plans are responding very differently based on their competitive market position, local provider networks and their need for scale.
The Goliath of the group, UnitedHealthcare, is the nation's largest insurer, but has applied in only nine states plus the District of Columbia. United can afford to pick and choose: its huge size means that it doesn?t need to bestir itself for exchange lives to grow. But its exchange choices are telling: Texas is too big of an opportunity to pass up ? it is crowded with exchange players because it has more than 6 million uninsured. New York is UnitedHealth's biggest market, and a very competitive one ? United has too much to lose by not participating. United also has substantial commercial market share to defend in Nevada, and Colorado has plenty of healthy lives to pick up. United (along with Aetna and Cigna) walked away from the California exchange, where the heavy competition will lower the price of individual coverage for 2014.
United is keeping its powder dry for 2015, when the exchanges? bugs are worked out and more is known about risk profile and utilization.
California-based Health Net has the opposite situation: years of eroding membership have created a desperate need to gain market share to remain viable. Health Net, which pioneered the narrow-network concept being adopted in exchanges nationwide, is throwing a Hail Mary pass by pricing its Southern California exchange plans below the rest of the competition. Certain to pick up thousands of bargain-seeking members, it may achieve sustainability ? or perhaps fatten up in time to become someone's 2015 acquisition.
WellPoint, with 14 state Blue Cross-affiliated plans, is in yet a different situation: it is the dominant health plan in most of its markets and earns about 25 percent of its profit from individual and small-group business. It's going all-in with the exchanges, building narrow networks in all 14 states to support affordable exchange offerings. WellPoint's aggressive exchange play is a defensive move to fend off competitors (regional plans, Aetna, Cigna and United). But it also heralds WellPoint's intention to become a more aggressive competitor.
Aetna and Cigna have had to choose their exchange markets carefully based on where they have the provider relationships and market presence to put forward a competitive product. Both plans focus on large multi-state employer groups, and don?t have much individual business to defend ? so their foray in the exchanges is a matter of seeking better market penetration in specific key areas.
But Aetna has found itself unable to meet pricing demands in several states where it had applied, and has pulled out of the exchanges in New York, Connecticut, Georgia, Ohio and Maryland. Luckily enough, Aetna's Coventry subsidiary has applied to offer plans in a dozen markets (including Ohio). Cigna, having invested heavily in accountable care organizations in its major markets, is sticking to just five states where it has sizeable ACOs.
Humana, whose commercial business has been eclipsed by its success in the Medicare segment, has filed in 14 states where its commercial plans are active, including impoverished states such as Mississippi and Alabama where most exchange purchasers will be getting subsidies. In Mississippi, where even the state's local Blue plan has avoided the exchange, Humana and Centene are the only players. Humana is clearly hoping to strengthen its local market presence through the exchanges.
Two Medicaid MCO operators ? Molina and Centene ? are testing the commercial health plan waters as exchange plans serving those who transition between Medicaid and the exchange. While Centene has a small commercial subsidiary, Molina has no experience in the commercial realm.
So what's the takeaway here?
These publicly held plans would not enter the healthcare exchanges if they did not see substantial profit in the enterprise. Knowing that the federal government's three risk-mitigation programs will shield them from excessive risk, they are pursuing the business in a calculated fashion. They?re controlling cost through narrow provider networks and generics-based formularies.
Insurers don?t expect large numbers of employers to ?dump? their employees into the exchanges in 2014. So the market for the exchanges will be the uninsured and those who are currently in the individual market. The biggest risk for the plans, then, is if relatively healthy uninsured Americans don?t show up to shop for coverage.
Plan executives also expect the early operations of the exchanges to be bumpy at best, chaotic at worst. But that knowledge hasn?t scared them. They know there are millions to be made, and they?re taking a longer view, to 2015 and beyond.
Follow Paula Wade on Twitter @PaulaWadehli