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Matt Dunning

Medicaid, Medicare Advantage enrollment drive rise in health insurer revenue

March 30, 2014 - 6:00am


The nation's biggest health insurers enjoyed modest growth in 2013, but their net income was nearly flat.

The five largest publicly-traded U.S. health insurers grew their collective revenue to $315 billion in 2013, a 13.6% increase over 2012.

Medical enrollments among the health insurance industry's leading companies increased an aggregate 6.6% in 2013 over 2012, while net income for the group was mostly flat, growing less than 1% over full-year results at the end of 2012.

As in prior years, analysts said the industry leaders' growth in revenue was driven primarily by insurers' targeted expansions of their Medicaid and Medicare Advantage enrollments, as most companies continued to experience attrition in their fully insured employer accounts.

The companies' profit margins, meanwhile, were insulated by conservative product pricing and better management of medical care and outcomes, analysts said.

“It was pretty similar to the previous year in terms of insurer's operations and what they're doing with the core segments of their business,” said Stephen Zaharuk, New York-based senior vice president at Moody's Investors Services Inc. “They went into 2013 with some conservatism, based on the last couple of years where they had seen medical trend growing at a lower rate than they had anticipated in their pricing.”

Analysts said the largest health insurers' financial results were aided by the their limited participation in public health insurance exchanges established under the Patient Protection and Affordable Care Act.

Earlier this month, the Washington-based health care consultant Avalere Health L.L.C. projected that enrollment in federal and state public exchanges will fall short of the government's goal of 7 million members by the end of March. The federal exchange in particular was plagued by problems when it rolled out last year.

In their employer-sponsored business segments, health insurers adjusted their business models to accommodate growing employer demand for cost-control solutions, including a moderate but steady expansion of their administrative service-only contracts for employers that self-fund their group health benefits.

The nation's largest health insurer, Minnetonka, Minn.-based UnitedHealth Group Inc., added 1.5 million members to its administrative services enrollments in 2013, an 8.3% increase over 2012, while its fully-insured commercial enrollments fell 12.4% to 8.2 million members.

Similarly, Indianapolis-based WellPoint Inc. and Bloomfield, Conn.-based Cigna Corp. each saw their risk-based commercial enrollments shrink in 2013 while adding modestly to their commercial fee-based membership.

Aetna Inc. posted the largest gains of the group (see related story).

“That's why you're seeing the insurers pushing towards growing their Medicaid and Medicare Advantage membership base,” said Vishnu Lekraj, a Chicago-based senior research analyst at Morningstar Inc., noting that while administrative services-only enrollments are generally growing, they typically generate just a fraction of the revenue of fully-insured accounts.

“On a percentage basis, they are more profitable, but you lose most of that profitability on a gross-dollar basis,” Mr. Lekraj said.

Self-funded health insurance arrangements have gained traction among smaller employers pressured to reduce the cost of their employee benefit programs, a trend analysts said is likely to continue this year. Experts say insurers are likely to augment pricing to partially offset the health care reform law's $25 billion temporary reinsurance assessment on commercial products, to be paid over three years.

Another notable 2013 marketplace trend was the proliferation of private health insurance exchanges operated by benefit brokers and consultants, responding primarily to employer demand for more financial predictability on employee benefits.

While all five of the largest health insurers have partnered with several third-party exchanges, Cigna and Hartford, Conn.-based Aetna Inc. also recently launched their own proprietary exchange platforms for workers, in part to shield their employer-sponsored business segments not only from revenue and enrollment attrition but profit margin dilution as well, analysts said.

“The value to the insurers is that they keep all the revenue in their own exchange, but there's also the issue of what kinds of risks you wind up with in a third-party exchange,” Mr. Zaharuk said. “There's always the danger when you split up coverage in a multi-insurer exchange environment that you could wind up with the higher-risk portion of an employee population based on your plan pricing and provider network.”

Analysts said insurers also devoted considerable resources in 2013 to expanding employer enrollment in ancillary services to help employees manage their overall health, as well as gain more insight about the cost and quality of care they receive.

In particular, analysts cited a 21% revenue increase for UnitedHealth Group's OptumHealth unit, which provides health and wellness programs, local care services and health-related financial services.

“A major driver of United's performance this year seems to have been their Optum platform,” said Tom Mason, a Charlottesville, Va.-based senior financial analyst at SNL Financial L.L.C. “It speaks to the company's migration from a business model that focuses solely on insurance coverage to one that brings in more total lifecycle management services.”

 



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