Health insurers performed reasonably well in 2012, but analysts say considerable uncertainty remains about the industry's readiness for the onset of key health care reform provisions in 2014.

Total revenues among the seven largest publicly traded U.S.-based managed care organizations grew by 8.6% in 2012, to $302.6 billion from $278.7 billion in 2011, according to Business Insurance's analysis of company reports. Enrollment among those same firms collectively grew by 9.2%, to 129.3 million members from 118.5 million in the prior year.

Net income growth among industry leaders was more erratic, as profits among the top seven health insurers grew collectively by just 1.7% in 2012, compared with 7.6% profit growth recorded in 2011.

Analysts said much of the growth in revenues and enrollments was attributable to leading insurers' continued pursuit of expansion opportunities for their Medicare Advantage and Medicaid portfolios, largely in anticipation of coverage mandates, the expansion of Medicaid and the rollout of public health insurance exchanges next year, which are projected to bring some 30 million new enrollees to insurers.

“All eyes are on 2014 and what's going to happen, not just with the exchanges but the expansion of Medicaid,” said Jennifer Lynch, a research analyst at New York-based BMO Capital Markets.

The managed care sector witnessed more than $18.8 billion in mergers and acquisitions in 2012, according to data compiled by Norwalk, Conn.-based Irving Levin Associates Inc., including WellPoint Inc.'s purchase of Virginia Beach, Va.-based Amerigroup Inc.; Aetna Inc.'s purchase of Bethesda, Md.-based Coventry Health Care Inc.; and Cigna Corp.'s purchase of Nashville, Tenn.-based HealthSpring Inc.

“A lot of the deals that we saw last year were geared toward gaining exposure to government-sponsored models, especially in regions where these companies weren't previously major players,” Ms. Lynch said.

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Employer-sponsored group health plans continued to produce mixed results for insurers in 2012. Aggregate commercial enrollments were essentially flat among the top seven health insurers, with four out of seven reporting membership losses between 2.0% and 9.7% from totals recorded in 2011. Commercial revenues performed slightly better, with five out of seven industry-leading insurers reporting year-over-year gains in 2012 compared with prior-year results.

Analysts noted that anemic performance on commercial lines was most often tied to traditional risk-based commercial products, while insurers have found limited success responding to growing interest among employers in self-insuring their group health plans (see related story).

“That's probably going to be a trend moving forward, where you see a lot of the larger group plans moving toward a self-funded model,” said Vishnu Lekraj, a Chicago-based research analyst at Morningstar Inc.

Looking ahead, analysts' central concern remains the managed care industry's navigation of the myriad challenges imposed by specific provisions of the Patient Protection and Affordable Care Act due to take effect in 2014, including annual industry assessments, medical loss ratio thresholds for Medicare-related products, coverage requirements for individual and group-based insurance plans, and the introduction of public exchanges into the marketplace.

“2014 is an environment that includes a lot of inherent change to the market that's going to happen with or without these insurers,” Ms. Lynch said. “Going forward, companies need to be focused on preparing their platforms for the coming changes. Even if their platform looks no different when we get to 2014, the sand will be moving underneath them.”

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Exactly how insurers choose to navigate those changes could have a material impact on employers and individual consumers, analysts said. Beginning in 2014, health insurers will collectively be charged an annual nondeductible assessment of $8 billion, increasing to $14.3 billion by 2018. Insurers' commercial products also will be charged a one-time temporary reinsurance assessment of $25 billion, to be paid out over three years.

In its fourth-quarter 2012 financial statement, Minnetonka, Minn.-based UnitedHealth Group Inc. — the nation's largest health insurer — said it planned to offset the burden of those assessments through premium rate increases and/or reductions in benefits, though it also noted it remains to be seen how such proposed actions will be received by state and federal insurance regulators.

“If we are not able to secure approval for adequate premium increases to offset increases in our cost structure, or if consumers forgo coverage as a result of such premium increases, our margins, results of operations, financial position and cash flows could be materially and adversely affected,” the company noted in its report.

“UnitedHealth has been talking about how they're going to try to pass a lot of these taxes and fees on to customers, but the big question mark is how much of those costs they'll be able to pass on,” said Tom Mason, a Charlottesville, Va.-based senior financial analyst at SNL Financial L.C. “Every rate increase gets scrutinized by every individual state, so it might be that they're going to encounter some resistance from state insurance departments.”