BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.

To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.

To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.

Login Register Subscribe

Health insurers see good year despite ACA


Despite challenges stemming from public health insurance exchange business and distractions posed by mergers among the top five, the largest publicly traded health insurers reported strong results in 2015.

Collectively, the largest U.S.-based publicly held health insurers reported $388.77 billion in total revenue in 2015, a 12.4% increase from 2014. Net income for the group grew 5.2% to $14.17 billion in 2015 (see chart, page 30).

Unitedhealth Group Inc., the only member of the top five not involved in a potential merger, posted the biggest gain in revenue with a 20.4% jump to $157.11 billion, while Aetna Inc. posted the largest percentage gain in net income, which rose to $2.39 billion in 2015.

Total medical enrollment rose 2.5% to 137.7 million members.

“Overall they did really well, compared to what they had projected,” said Stephen Zaharuk, New York-based senior vice president at Moody's Investors Service Inc. “Most of them beat guidance, and in 2015 there was a lot going on.”

The biggest challenge — and “the biggest disappointment,” Mr. Zaharuk said — was the performance of exchange business related to the health care reform law, which remained unprofitable for the group.

“It's a new paradigm,” Mr. Zaharuk said. Insurers “weren't clear on who was going to buy the insurance policies, and so they made some guesses and it turned out they were wrong.”

Analysts say public health insurance exchange enrollees tend to be older and higher risk, meaning they use more services.

Several insurers have complained that people in need of medical care signed up for coverage during special enrollment periods, and then dropped it once they received treatment. Heeding insurers' calls, the Centers for Medicare and Medicaid Services in January tightened the rules governing special enrollment.

UnitedHealth, which pulled back on marketing its exchange plans for 2016 and is mulling an exit in 2017, reported a loss of $720 million related to the individual policies it sold through the public exchanges in 2015, including $245 million set aside in the fourth quarter for 2016 losses. The insurer cited weak enrollment in public exchange business and high medical costs for those who did enroll.

“We can't subsidize a market that doesn't appear at this point to be sustaining itself,” United CEO Stephen Hemsley told analysts in November.

Exacerbating matters for some insurers, CMS announced last year that the reform law's risk corridor program, which is intended to offset some losses sustained by insurers during the first three years of the exchanges, would pay only 12.6% of the funds insurers requested for 2014 losses.

“It was a headwind as far as profitability,” said Vishnu Lekraj, Chicago-based senior health care analyst at Morningstar Inc.

“It's going to take (insurers) time to get used to the underwriting, the pricing — especially with all the added mandates the Affordable Care Act has placed on these companies as far as restricting underwriting, profitability caps, things of that nature,” he said. Still, “I don't think you are going to see any large-scale exits unless there are massive losses in 2016.”

Despite the poor results of the exchange business, the top five insurers have enjoyed “strong and consistent financial results” during the last several years due to “disciplined pricing, strong membership growth in the government segments, continued moderate utilization trends and earnings diversification,” according to a Moody's report released in February.

“It looked like medical cost trend stayed pretty low, or moderate, and I think that helped earnings a lot,” said Tom Mason, senior insurance industry analyst at S&P Global Market Intelligence in Charlottesville, Virginia.

“High deductibles make people think about going to the doctor before they go to the doctor. That helps bring down utilization,” Mr. Zaharuk said. “They've also put in more tools, electronic tools, where people can get better understanding of how to take care of themselves and basically get the most efficient care when they need care. Those tools are starting to work and to get utilization down.”

Additionally, insurers saw solid membership growth in Medicaid and Medicare business. And insurers' have been expanding into noninsurance, health-related business to diversify earnings, which helps “provide them with unregulated cash-flow or earnings that are free from any threat of regulation,” Mr. Zaharuk said.

Aetna, for example, has invested in health information technology. But the biggest example in the past several years is UnitedHealth's operations under its subsidiary Optum Inc., a health services and analytics company. Optum's pharmacy services unit, OptumRx, also acquired rival PBM Catamaran Corp., and Optum announced its acquisition of walk-in clinic provider MedExpress last year.

Analysts said the other major distraction for health insurers was the wave of merger activity in the sector, including the proposed tie-ups between Aetna and Humana Inc., and Anthem and Cigna Corp., as well as the recently approved acquisition of Health Net Inc. by Centene Corp.

The mergers will lead to increased “financial leverage, reduced financial flexibility and larger goodwill and intangibles on their balance sheets,” said a February A.M. Best Co. Inc. report.

The Aetna-Humana and Anthem-Cigna mergers are expected to close in the latter half of 2016.

Read Next

  • Outlier Berkshire Hathaway deal drags down reinsurer results

    A group of 18 U.S. property/casualty reinsurers produced $38.87 billion in net written premiums in 2015, an 18.6% decline from the prior year due largely to a loss-portfolio deal involving National Indemnity Co., according to the Washington-based Reinsurance Association of America.