Study: ‘Big five’ insurers depend heavily on Medicare, Medicaid business

Rising Stocks

Even as they’ve retreated from the Affordable Care Act exchanges, the country’s biggest for-profit health insurers have become increasingly dependent on Medicare and Medicaid for both profits and growth.

In fact, Medicare and Medicaid accounted for 59% of the revenues of the “big five” U.S. commercial health insurers—UnitedHealthcare, Anthem, Aetna, Cigna and Humana—in 2016, according to a new Health Affairs study.

From 2010 to 2016, the combined Medicare and Medicaid revenue from those insurers ballooned from $92.5 billion to $213.1 billion. The companies’ Medicare and Medicaid business also grew faster than other segments, doubling from 12.8 million to 25.5 million members during that time.

All these positive trends, the study noted, helped offset the financial losses that drove the firms to reduce their presence in the individual marketplaces. Indeed, the big five insurers’ pretax profits either increased or held steady during the first three years of the ACA’s individual market reforms (2013-2016). Their profit margins did decline during those three years, but stabilized between 2014 and 2016.

Not only do these findings demonstrate the “growing mutual dependence between public programs and private insurers,” the study authors said, but they also suggest a useful policy lever. The authors argued that in order to help stabilize the ACA exchanges, federal and state laws could require any insurer participating in Medicare or state Medicaid programs to also offer individual market plans in those areas.

Nevada has already done something similar: It offered an advantage in Medicaid managed care contract billing for insurers that promised to participate in the state’s ACA exchange. The state credited that policy with its ability to coax Centene to step in and cover counties that otherwise would have lacked an exchange carrier in 2018.

It’s far less certain, though, whether such a concept will ever be embraced at the federal level during the Trump administration, since its focus has been on unwinding the ACA rather than propping it up.

Either way, recent events underscore the study’s findings about how lucrative government business has become for major insurers. One of the main goals of CVS’ proposed acquisition of Aetna is to improve care for Medicare patients, which would help the combined company “be more competitive in this fast-growing segment of the market,” CVS CEO Larry Merlo said on a call this week.

Aetna CEO Mark Bertolini added that the transaction has “incredible potential” for Medicare and Medicaid members, as the goal is to provide the type of high-touch interaction and care coordination they need to navigate the healthcare system.


Blue Cross Blue Shield insurers are still doing well

 Blue Cross Blue Shield health insurance companies have more than quintupled their net profits in the first half of this year compared with the same six months of 2016, according to an analysis of financial records by Fitch Ratings.

The bottom line: We reported over the summer that the Blues, which have the most exposure to the Affordable Care Act marketplaces, are making a lot of money despite the Trump administration’s threats and actions against the ACA. Why are profits still growing for the Blues? They raised premiums a lot, people are not going to the doctor or hospital as much, and the federal government modified some enrollment policies to the benefit of insurers.

The details: Fitch analyzed the first-half financial documents of 34 Blue Cross Blue Shield companies, including the publicly traded Anthem as well as other large Blues brands such as Health Care Service Corp. and Blue Shield of California. Almost every company improved its finances year over year, leading to the following aggregate financial data for the first six months of 2017:

  • $135 billion of revenue (up 7%)
  • $7.7 billion underwriting profit, or the amount of money made after subtracting medical costs from premiums paid (up 194%)
  • $6.5 billion net profit (up 441%)
  • 85.9% medical loss ratio, which reflects how much of the premium dollar is spent on medical care (down 0.8 percentage points)

What was true previously is still true now: Most health insurers are not currently losing their shirts on the ACA’s individual marketplaces, although next year could be different depending on what happens to the law’s cost-sharing subsidies. While the higher premium rates have not harmed people who get federal subsidies, they have caused more financial pain for middle-class people who have to pay the full cost of their health insurance.

Looking ahead: Congress delayed the ACA’s health insurer tax throughout 2017 — another reason why companies have done so much better this year. Insurers have conducted a lobbying blitz to get Congress to repeal or delay that fee again, and legislation that would delay the tax for another two years could be folded into a year-end package.

Health insurers working the system to pad their profits

Image result for Health insurers working the system to pad their profits

Commentary: taking advantage of Medicare Advantage

One of the reasons the health insurance industry worked behind the scenes in 2009 and 2010 to derail Obamacare was the fear that changes mandated by the law would cut their Medicare Advantage profits. Medicare Advantage plans are federally funded but privately run alternatives to traditional fee-for-service Medicare.

Although the industry’s biggest trade group, America’s Health Insurance Plans, said repeatedly that insurers supported Obamacare, the group was secretly financing the U.S. Chamber of Commerce’s TV campaign against reform. Among the companies most concerned about the law were those benefiting from overpayments the federal government had been making to their Medicare Advantage plans since George W. Bush was in the White House.

Bush and other Republicans saw the Medicare Advantage program as a way to incrementally privatize Medicare. To entice insurers to participate in the program, the federal government devised a payment scheme that resulted in taxpayers paying far more for people enrolled in the Medicare Advantage plans than those who remained in the traditional program. The extra cash enables insurers to offer benefits traditional Medicare doesn’t, like coverage for glasses and hearing aids, and to cap enrollees’ out-of-pocket expenses.

When the Affordable Care Act became law in 2010, the payments to Medicare Advantage plans exceeded traditional Medicare payments by 14 percent. To end what they considered an unfair advantage for private insurers, and to reduce overall spending on Medicare, Democrats who wrote the reform law included language to gradually eliminate the over-payments.  So far, the 14 percent disparity has been reduced to 2 percent.  The final reductions are scheduled to be made next year.

Despite that decrease, the fears by Republicans and insurance company executives that the reductions would lead to a steady decline in Medicare Advantage enrollees have proved to be completely unfounded. In fact, the plans have continued to grow at a fast clip.

In March 2010, the month Obamacare became law, 11.1 million people were enrolled in Medicare Advantage plans—one of every four people eligible for Medicare. That was an increase from the 10.5 million Medicare Advantage enrollees in March 2009. Since then, Medicare Advantage membership has grown by more than 8 percent annually. Now 17.3 million—one in three people eligible for Medicare—are enrolled in private plans.

As Center for Public Integrity senior reporter Fred Schulte has written over the past year, many insurers have discovered that even though the overpayments are being reduced, they can boost profits another way: by manipulating a provision of a 2003 law that allows them to get additional cash for enrollees deemed to be sicker than average.

A risk-coding program was put in place by the government primarily because insurers were targeting their marketing efforts to attract younger and healthier—and thus cheaper— beneficiaries. Under the risk-coding program, insurers are paid more to cover patients who are older and sicker; the idea was to encourage the firms to cover those folks by offering a financial incentive. They get more money, for example, to cover someone with a history of heart disease than they do for someone with no such risk.  Last week Schulte uncovered whistleblower accusations that a medical consulting firm and more than two dozen Medicare Advantage plans have been ripping taxpayers off by conducting in-home patient exams that allegedly overstated how much the plans should be paid.

The Center for Medicare and Medicaid Services has refused to provide information that would enable taxpayers to know just how widespread fraud and abuse in the Medicare Advantage program might be. But CMS announced earlier this year that it will implement plans designed to make it harder for insurers to manipulate the risk scores. As you can imagine, insurers have howled and have put on a full court press to get CMS to scuttle those plans, but so far the agency says it intends to go forward. We’ll see.

This all matters to insurers because more and more of their revenue and profits are coming from the Medicare and Medicaid programs. When Aetna announced a few weeks ago that it planned to buy Humana, which has more than three million Medicare Advantage members—second only to UnitedHealthcare—Aetna and Humana executives said 56 percent of revenues from the combined company would come from the government programs.

Indeed, some of the firms would not be growing at all if it weren’t for their government business. When Aetna announced second quarter earnings earlier this month, the company noted that its membership in Medicare and Medicaid programs was up 8 percent over the same period last year. By contrast, its commercial membership was down from last year.

Despite that dip in commercial membership, Aetna surprised Wall Street with stronger profits than financial analysts had expected.

So don’t expect the Medicare Advantage program to wither on the vine because of Obamacare. If anything, it will continue to grow—as will the profits of the private insurers that participate in the program.