February 2, 2012
Although those calling for the repeal of the Affordable Care Act (ACA) argue that it is a job-killing, business crushing burden, there is one industry segment that has definitely profited under the ACA – health insurers.
In fact, while lamenting the medical-loss ratio and rate increase review provisions of the ACA, health insurers have reported some of their highest profits of all time during the last few years.
For example, during the first quarter of 2011:
- 13 of the 14 top health insurers and managed care companies exceeded their earnings per share estimates;
- 10 of 14 companies showed stronger profits than expectations; and
- Average earnings over estimates for the 14 companies were 45.7 percent.
During the first three quarters of 2011, “the combined operating margins of the five largest publicly-traded insurance companies averaged 8.65 percent.”
Certainly not all businesses are suffering under the ACA.
Now, a recent study shows that the major health insurers are profiting by expanding their role in Medicare and Medicaid.
Governments are outsourcing these programs to private insurers in the hope that it will reduce costs. Health insurers then step in to run Medicare and Medicaid programs as managed-care plans instead of the traditional fee-for-service plans.
Over half of the 60 million people in the Medicaid program are already in managed-care programs run by large private health insurers. Nationally, managed-care organizations control $150 billion of the $400 billion in Medicaid spending.
As a result of this outsourcing, revenue from large insurers’ Medicare and Medicaid businesses has jumped from 36 percent to 42 percent over the last three years.
And, if Medicaid expansion survives the Supreme Court’s review, these insurers stand to reap even more profits when an additional 16 million low-income individuals become eligible for Medicaid.
Whether or not Medicaid expansion survives, states are increasingly relying on the managed-care model in their efforts to reduce the Medicaid burden on their budgets.
Florida is seeking a waiver from CMS to expand its managed-care pilot program from five counties to cover the entire state. CMS recently granted Texas permission to expand its Medicaid managed-care program.
Beginning February 1, Louisiana rolled out its Medicaid managed-care program, Bayou Health. When fully implemented, the program will shift $2.2 billion of Louisiana’s $6.7 billion Medicaid budget to private insurers.
Changes in Ohio’s managed-care program are expected to attract more insurers to bid for portions of the state’s $7.3 billion Medicaid spending.
CareSource, the only managed-care plan now operating in all eight of Ohio’s current regions, reported gains from claims paid out on premiums collected of $101 million in 2010. Molina Healthcare Inc., second to CaseSource in enrollees, had gains of $50 million.
Ohio is also linking payment to quality for the managed-care contractors.
In total, nearly two dozen states are planning Medicaid managed-care expansion in 2012.
Insurers lobbied aggressively for the individual mandate and will profit when it takes effect in 2014. They will profit from Medicaid managed-care whether or not the expansion is upheld.
So, without question, the ACA has been good for the business of health insurers.