By Anna Wilde Mathews
After most health insurers racked up financial losses on
Affordable Care Act plans in 2014, many companies' results for last
year worsened, creating heavy pressure to improve performance this
year.
An analysis of filings by not-for-profit Blue Cross and Blue
Shield insurers--among the biggest players in the law's exchanges
for buying individual insurance--shows the challenge facing the
industry as it seeks a turnaround in the individual business. They
paid out more for health care in the first three quarters of 2015
than they took in from premiums on their individual plans.
On Wednesday, Humana Inc. became the latest of the big publicly
traded companies to flag problems, saying its losses on individual
plans deepened last year. Humana included in its 2015 results $176
million in losses it expects to incur on such plans in 2016.
Though the health law has added customers to many insurers'
rolls, much of that growth has been unprofitable, reflecting
medical costs that have often run ahead of what insurers projected
when they set premiums, among other factors.
The nonprofit Blues included in the regulatory-filings
analysis--which was done by J.P. Morgan--had roughly $20.4 billion
in individual-plan premiums over the first three quarters of 2015.
Those enrollees incurred about $20.7 billion in medical claims. The
result was sharply worse than a year earlier, when the premium
total was larger than the claims payout.
Blue Cross and Blue Shield of Louisiana, which estimated it had
a loss of $77 million on individual plans for 2015, compared with a
$66 million loss in 2014, said the "overall risk of people buying
insurance on the exchanges is much higher than planned for," in
part because the law hasn't attracted enough healthy enrollees. The
insurer said such losses "cannot be sustained long-term."
In an interview, Kevin Counihan, the head of the Centers for
Medicare and Medicaid Services unit charged with implementing the
health law, said there were many new customers among the 12.7
million people who chose plans during enrollment for 2016,
signaling that "the market is getting stronger; it's going to be
increasingly more attractive" for insurers.
In 2014, the year the health law's marketplace plans launched,
70% of insurers lost money on individual plans in the end, McKinsey
& Co. calculates.
There were some brighter spots; plans in a few states--notably
California, which runs its own marketplace--produced profits. Some
Medicaid-focused companies, such as Molina Healthcare Inc. and
Centene Corp., have been profitable on the exchanges.
But for 2015, recent earnings calls by the largest publicly
traded insurers--many of which reported strong overall
results--have highlighted setbacks with the ACA business.
Typically, the ACA plans represent a relatively small share of
total revenue. Humana said it "continues to evaluate its
participation in the individual commercial business for 2017." The
insurer has agreed to be acquired by Aetna Inc. in a deal awaiting
antitrust clearance.
UnitedHealth Group Inc. said it had losses of about $475 million
on its 2015 ACA-plan business, and booked $245 million of projected
2016 losses as part of 2015 results; it is considering withdrawing
from exchanges.
Aetna said it saw a negative margin of 3% to 4% in 2015 on
individual plans. Anthem Inc., which achieved profits on individual
plans in 2014, fell back to roughly break-even in 2015, amid
enrollment that came in below what it once expected.
The most dramatic signs of strain came from startup cooperative
insurers launched by the health law, many of which closed their
operations in the wake of losses last year.
Among the nonprofit Blues, the results in the state filings
likely indicated overall loss margins of around 11% to 16% on
individual plans in the first three quarters of 2015, once other
expenses were factored in, said Gary Taylor, a J.P. Morgan analyst.
He also said medical claims often tick up in the fourth quarter,
for which state filings aren't yet public.
In explaining losses on individual plans sold on the state
health exchanges or the federal one, insurers have complained of
higher expenses from consumers who sign up for coverage outside the
annual open-enrollment period, often as they appear to need medical
care. "We're starting to see some issues of potential gaming of the
system," said Eric Earling, a spokesman for Premera Blue Cross. In
its main market, Washington state, Premera was 8% in the black for
its individual plans in 2014, but it swung to a roughly 6% loss in
2015.
Analysts said insurers themselves may have misfired in setting
rates too low, either because they were hoping to grab market share
or because they had little data on which to base their projections.
"Some of it is based on insurers somewhat aggressively pricing this
business," said Deep Banerjee, an analyst with Standard &
Poor's Ratings Services.
The losses put a spotlight on 2016. "If 2016 is like 2015, we'll
have a real problem, because carriers could just start pulling
out," said Tom Snook, an actuary with consultants Milliman Inc.
Many insurers made changes for this year, including significant
rate increases and paring of product offerings. Federal regulators
have also made tweaks, including more limits on consumers' ability
to sign up for coverage outside open enrollment.
Mr. Counihan of the federal CMS said regulators are also looking
closely at data about the off-season enrollees, and in situations
where there "could be potential abuse, we're going to address that
and fix them."
Some insurers are projecting improvement this year. Aetna is
expecting to break even. Anthem has forecast a positive margin.
Other companies, echoing UnitedHealth and Humana, are already
worried about 2016. BlueCross BlueShield of Tennessee, which
estimates it lost more than $150 million on its individual business
in 2015, is projecting a significant loss for 2016, said Roy
Vaughn, a spokesman. That would come despite a rate increase of
around 36.3% for this year's ACA plans.
The insurer will need to seek another rate boost for 2017 "to
try to get us to a level that makes it sustainable," Mr. Vaughn
said.
Write to Anna Wilde Mathews at anna.mathews@wsj.com
(END) Dow Jones Newswires
February 10, 2016 20:55 ET (01:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Humana (NYSE:HUM)
Historical Stock Chart
From Jun 2024 to Jul 2024
Humana (NYSE:HUM)
Historical Stock Chart
From Jul 2023 to Jul 2024