While Congress was squabbling over healthcare reform this spring, the country’s largest health insurers raked in strong profits in the second quarter. This is due, in part, to less exposure to the Affordable Care Act marketplaces.
The nation’s top six health insurers reported a combined $6 billion in adjusted profits for the second quarter. That’s up a hefty 29 percent more than the same quarter a year ago — far outpacing the overall S&P 500 health care sector‘s growth of 8.5 percent for the quarter, according to data from Thomson Reuters I/B/E/S.
“A lot of the companies have downsized their exposure to the public exchanges,” said health care equity analyst A.J. Rice, a managing director at UBS. “The core business, which is providing coverage to large and mid-sized employers… and the established government programs, Medicare Advantage and Medicaid managed care, have all done well.”
Aetna, Humana and Cigna may be taking losses on Obamacare individual plans, but all three were still able to pull off an adjusted earnings rise of more than 45 percent from one year ago. Centene and United Health Group’s adjusted profits were roughly 25 percent higher than last year, and Anthem came in last place, only earning a meager 2 percent more than last year. Still, a profit is a profit. And it’s interesting that some Americans are literally killing themselves over skyrocketing health insurance costs, but these six companies are turning strong profits.
As a result of such strong earnings, all six of the top insurers’ stocks have hit all-time highs this summer. In fact, the S&P 500 Managed Care sector is up 25 percent year to date.
What’s going on?
According to a report from CNBC, analysts say that increasing use of high deductible plans is helping insurers save on medical spending, and it’s also driving down the use of hospital emergency rooms, which is evident in the fact that a number of the hospital providers reported lower volumes this quarter.
“It’s not so much that (insurers are) getting great concession from hospitals,” explained Rice. “Employees have much more upfront costs… and maybe they’re taking a look at some utilization.”
“The Medicaid and Medicare markets are increasingly driving insurer topline growth, and that is where the plans are setting their sights on expansion. Aetna now derives more than half of its revenue from government plans, and after abandoning its merger deal with Humana, the insurer is focused on growing its Medicare Advantage market share on its own in 2018 and 2019,” according to the report.
“The general trend is growing the portion of health care claims that are directly or indirectly paid by the federal government,” said health care ratings analyst Deep Banerjee, a director at S&P Global Ratings.
“If you look at Medicare Advantage, it’s a public-private partnership,” said Banerjee. “Even with a single payer in a public-private partnership, insurance companies are very involved in managing the costs, and actually running the program for the state or the federal government.”
And as state and federal officials governments look to cut costs in programs like Medicaid, they are increasingly turning to the insurers.
With the 2018 open enrollment period for Obamacare looming in less than three months, large and small insurers still don’t know if the Trump administration will continue to pay cost-reduction subsidies for low-income enrollees and whether the health insurance tax will be reinstated next year. For this reason, they’ve been raising their rate forecasts substantially.
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