Column: Dirty little secret: Insurers actually are making a mint from Obamacare
For months now, headlines about the Affordable Care Act have focused on complaints from big insurers that they can’t make money from the individual insurance market.
The big insurer UnitedHealth Group has whined about losing so many millions it’s thinking about withdrawing from the Obamacare marketplace as soon as next year. Others, including Anthem and Aetna, have mentioned that their exchange business isn’t yet profitable, though they’re not talking about pulling the plug--yet.
It seems that insurers are perfectly happy and prosperous competing in the markets where the government is the payer.
— Healthcare analyst Andrew Sprung
Here’s what they haven’t been saying so loudly: They’re making scads of money from Obamacare — so much that almost universally, they’re expanding their participation.
What’s the catch? The big profits have come not from the plans on the insurance exchanges, but via the ACA’s Medicaid expansion, in which the largest insurers play a major role. The same insurance executives who go out of their way to badmouth the ACA’s individual exchange plans talk as though they can’t get enough of the Medicaid business, especially its managed care component.
“Managed Medicaid continues to emerge as the ultimate long-term sustaining solution for states,” United CFO Dave Wichmann told investors last month, adding that his company expected to compete for that business aggressively.
This trend not only underscores the diversity of healthcare solutions embedded in Obamacare, but may also point to its future. In Medicaid, as in Medicare, government is the single payer. It sets reimbursement rates for doctors and hospitals and sets enrollment terms so that members, once enrolled, stay enrolled.
Moreover, the programs are almost entirely free or at least very inexpensive for members. That ensures that the programs get a lot of healthy enrollees as well as those with heavy medical needs, a mix that makes the costs of the overall insurance pool relatively stable and predictable.
These factors and others eliminate many of the uncertainties that have bedeviled insurers in the exchange market, where the health profiles of customers have been hard to gauge and their movement into and out of health plans, sometimes to Medicare and Medicaid, has been vigorous.
“It seems that insurers are perfectly happy and prosperous competing in the markets where the government is the payer,” observes Andrew Sprung on his Xpostfactoid blog. He’s right. Anthem, which has been grousing about the elusive profits in the exchange market, also has been buying up Medicaid insurers — acquiring Amerigroup, which operates Medicaid plans in 13 states, for nearly $4.5 billion in 2012, and Simply Healthcare, with nearly 200,000 Medicaid and Medicare members in Florida, for $1 billion last year.
Medicaid specialty insurers such as Wellcare and Centene have done especially well. Medicaid managed care enrollment at St. Louis-based Centene grew last year by more than 20%, to 5.1 million members in 24 states.
“Clearly, 2015 was a banner year,” crowed its CEO, Michael Neidorff, in a conference call last week. No dissing of Obamacare was heard on the call.
Executives in the Medicaid market expect continued growth as the last states holding out against the ACA’s Medicaid expansion give in. The healthcare reform act was designed to offer health insurance to lower-income Americans by expanding Medicaid eligibility to cover all those with household income at or below 138% of the federal poverty line, or about $33,500 for a family of four. The federal government would cover states for 100% of the additional cost through this year, and no less than 90% after that.
That strategy was nixed by the Supreme Court, which ruled in 2012 that the expansion could be only voluntary, not imposed as a federal mandate. Sixteen states — all controlled by Republican governors or legislators or both — are still resisting, but several original holdouts have given in to the opportunity to cover tens or hundreds of thousands of residents at virtually no cost to the state budget (see map below).
Louisiana’s new governor, Democrat John Bel Edwards, last month signed on to Medicaid expansion, reversing the opposition of his Republican predecessor, Bobby Jindal. That will bring coverage to as many as 300,000 Louisianans.
Sprung observes that the experience of insurers in Medicaid, especially Medicaid managed care, shows how to expand publicly financed healthcare by offering “a program rather like Medicaid” to even more people. It might be open to all those with incomes below 200% of the poverty line and without access to employer-sponsored coverage, he suggests. The lowest-income enrollees still would get the plan for free or nearly free, and “higher income enrollees could buy in on a sliding scale,” Sprung proposes. “Because payment rates would be more like those of our current programs than like private ones, premiums and copays would be lower.”
Sprung notes that the losers in this arrangement “would be not insurers, and not enrollees, but healthcare providers, for whom one more segment of the overall market would be paying government rates. But the individual health insurance market is relatively small — probably a bit under 20 million lives at present, potentially perhaps 30 million if plans were affordable enough to bring in those who are holding back at present. That’s as compared to about 147 million in the employer sponsored market.”
The real question is whether the healthcare system for lower-income Americans could transition to this existing system without eroding its advantages. Leaving aside the ideological opposition to any Medicaid expansion in several states, some that have capitulated have done so by making the program slightly more expensive for enrollees — charging modest premiums and co-pays for some services, for example.
That could be a slippery slope. “Medicaid managed care works because you have a very large percentage of the overall market and nominal premiums,” Larry Levitt of the Kaiser Family Foundation says. Any substantial raise in premiums would discourage healthier people from signing up — creating the same “skewed risk pool” that causes risk-management problems for insurers in the individual market.
Yet it remains true that a very significant portion of the ACA’s insurance provision is working so well that even the most loudly grumbling insurers are happy with it, and want even more of it. It’s single-payer, government-financed, yet administered by private insurers. Because its enrollee costs are so low, its value to them is higher in actuarial terms than even the average employer plan. Could this be the future?
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