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The nation's largest publicly held health insurers met or exceeded most analysts' expectations in 2014 despite the tumultuous rollout of public health insurance exchanges plus new fees and regulations under federal health care reform law.
Collectively, the five largest U.S.-based publicly traded health insurers recorded $345.77 billion in total revenue in 2014, a 10.2% increase from 2013. Their net income grew to $13.48 billion in 2014, up 5.4% from the previous year.
Total medical enrollment also increased, rising 3.9% to 134.4 million lives in 2014.
“In one word, it was impressive,” said Vishnu Lekraj, a Chicago-based senior research analyst at Morningstar Inc. “All of the major insurers really performed well, especially given all of the new regulations, fees and taxes in place, and given all of the uncertainty around the exchanges.”
Analysts said a key contributor was insurers' relatively conservative approach to participation and/or coverage pricing in public health insurance exchanges established under President Obama's health care reform law.
Two of the five offered coverage through just a handful of state-run or federally operated exchanges in their inaugural year, due largely to concern that their exchange-based products would attract a disproportionate percentage of older and/or less healthy enrollees.
UnitedHealth Group Inc. and Cigna Corp. both limited their participation to just five exchanges for the 2014 plan year, generating roughly 10,000 and 125,00 new members, respectively.
Conversely, Aetna Inc. and Anthem Inc. took more aggressive strategies, offering coverage through 16 and 14 states, respectively, to a combined 13.6 million members. However, the health insurers also were more diligent in pricing their exchange-based plans to guard against the risk of adverse selection, analysts said.
Alongside medical utilization rates that were lower than had been predicted, the exchanges' 2014 enrollment pool showed a more even balance between high-risk and low-risk plan members at midyear last year, prompting insurers to expand their participation in the public exchanges this year.
In particular, UnitedHealth broadened its footprint in the public exchange marketplace from five states to 23 for the 2015 plan year.
“This includes eight of the 10 largest exchange market states, and 15 states where we offer complementary Medicaid plans,” UnitedHealth Group CEO Stephen Helmsley said during a recent earnings conference call with analysts.
At year-end, UnitedHealth had more than 400,000 individuals enrolled in coverage through public exchanges, with up to 100,000 more predicted to purchase coverage by the end of the 2015 open enrollment period.
“They'd kept themselves at an arm's length from the exchanges in the beginning, but they've made a really big push into that space for 2015,” said Tom Mason, a Charlottesville, Virginia-based senior financial analyst at SNL Financial L.C. “So it looks like they view the exchanges as a pretty significant opportunity.”
Aetna, Cigna and Humana Inc. also expanded their participation in public exchanges. Anthem already is participating in public exchanges in all 14 states where it operates, with Cigna expanding its market footprint to three states, and Aetna and Humana each adding one state to their exchange strategies.
But insurers' optimism was far more muted on the short-term opportunities for revenue and membership growth through private health insurance exchanges.
“There (has) been a lot of conversation in the market as we expected,” said David Cordani, president and CEO of Cigna.
In addition to participating in several third-party private exchanges owned by benefit broker/consultants, Cigna launched its own exchange platform last year.
“Consistent with our prior dialogues, we did not expect to see a significant amount of movement in the overall landscape in the marketplace in "14 or "15, and that's what manifested for both the industry as a whole, as well as for ourselves,” Mr. Cordani said during the company's recent conference call with analysts. “We saw some movement in both directions, but it all nets out to (an inconsequential) amount of activity.”
Analysts said one factor potentially impeding broader implementation of private exchanges is the ongoing migration of large and midsize companies to self-funded health insurance programs.
Among the top five publicly traded health insurers, the volume of administrative services-only contracts for self-insured employers grew an average 2.4% in 2014, while the volume of fully insured companies declined an average of 1.6%, according to the companies' filings.
“It looks as though (administrative services-only contracts) actually accelerated a bit in 2014, and it's probably going to continue to be the case moving forward, especially among the larger employers,” Mr. Lekraj said. “It's going to reach a floor at some point, but the timing on that is still up in the air. We'll have to see how the small-employer market works out over the next two years.”
National Indemnity Co. drove a 78.4% increase in net written premiums among 18 U.S. reinsurers in 2014.