Carriers Face Tough Post-ACA Market

Carriers Face Tough Post-ACA MarketHEALTHCARE
Carriers Face Tough Post-ACA Market
Players in the U.S. health insurance industry are expected to suffer from narrowed operating margins for the next few years due to the Affordable Care Act (ACA). The operating environment has become so tough that some health plans, especially smaller ones, may be forced to exit the market. Players are facing high regulatory compliance costs, increased taxes and fees, pricing pressure, rising medical costs, stiff competition and general marketplace uncertainty, according to an analysis by Zachs Equity Research. But the ACA is hardly the unmitigated disaster that some industry players make it out to be.

Before the ACA, insurance companies had an upper hand in choosing whom to provide coverage. But now, consumers’ increased purchasing power and access to information is one of the major threats to insurers. Before the ACA, big insurers that dominated large markets rarely gave consumers even basic information, such as the performance of health insurance policies, procedures to claim, the size of the provider network, and cancellation processes. Now customers demand transparency, value, and convenience, leaving insurers grappling for ways to satisfy these needs. The new mission will not be easy to execute.

The industry has witnessed a shift in insurers’ business mix from commercial insurance to government (Medicare, Medicaid and State-subsidized marketplace or exchange) and from fully insured risk policies to administrative services only (ASO) products. This shift in business has hurt profitability. Premiums for Medicare, Medicaid and state-subsidized policies tend to be higher due to the serious health issues for many enrollees, but they carry smaller profit margins compared to commercial insurance. ASO policies only pay administrative charges to the insurers and are far less profitable than full risk covered policies. A massive shift to ASO products is visible since they offer employers the best way to cut health insurance costs. Aggregate industry margins will decline modestly as more industry revenue comes from lower margin government and ASO business.

ACA fees and taxes remain a big issue for the insurers in 2015 and are expected to eat into insurers’ bottom lines, such as an annual health insurance industry fee and an exchange user fee, or Cadillac fee. UnitedHealth Inc. expects its share of the managed care industry’s non-deductible ACA insurer tax to reach $1.8 billion in 2015 from $1.3 billion in 2014. This is on top of $320 million in reinsurance fees. The company expects these two headwinds to cost $0.15 per share in 2015. In 2014, UnitedHealth’s margins fell 50 basis points due to Medicare Advantage cuts, ACA costs, mix (more government business), and less favorable development of medical costs. These trends are likely to remain throughout 2015. While theses factors might affect the players in the industry deeply, Zach does not recommend selling any stock under its coverage, namely UnitedHealth, Anthem, Aetna, Humana, and Health Net. For more information, visit zacks.com.

HMOs Burn Hot This Summer
The HMO industry grew warmer in the aftermath of this week’s Affordable Care Act (ACA) affirmation by the U.S. Supreme Court. That guarantees more insurance customers, according to a report by Zachs Equity Research. This 13-company industry is ranked 16th out of 265 industries that Zacks ranks (top 6%). UnitedHealth Group, Anthem, Aetna, Humana, and Cigna Corp. are the five largest for-profit health insurers. Humana is the smallest of these.

On the negative side, the HMO insurance business is already very concentrated. Mergers and acquisitions can really affect share prices. Anti-trust issues would be enormous for any deal. If five giant HMO companies become four, an approved merger makes it tougher for the remaining four to get approval. In light of that, carriers will race to the altar. But it won’t matter who gets there first if all are blocked.

Aetna and Cigna are rumored to be interested buyers for Humana, a dominant Medicare Advantage company. Cigna mostly serves employers. Aetna’s business is spread across employers, Medicare, and Medicaid. For example, an Aetna and Humana merger would build up market share in the Medicare area, which would not make the federal government happy. There is also a lot of regional overlap in the Aetna and Humana business mix. The price tags for Aetna, Cigna, and Humana could range from $35 billion to $65 billion or more, using average valuation multiples of healthcare deals this year.

Private Medicare and Medicaid HMO plans have grown for two reasons. First, more Baby Boomers are aging. Second, more low-income people have gained ACA coverage through Medicaid expansion. The reasons to merge HMOs are to increase scale and cut costs. First, health insurers have to battle with consolidated hospital systems, which are ballooning through mergers, and are commanding higher rate increases. Second, prescription drug prices have escalated beyond consumer price inflation.

Bigger insurance companies could better fight back on price increases. Will they pass on any cost savings to consumers? Big mergers are more likely to help insurer profits than reduce people’s health insurance premiums. It’s unlikely that HMO mergers in an already concentrated health insurance industry would benefit consumers. The government didn’t launch the ACA just to have health care cost savings absorbed by enlarged, super-major, and health insurance corporations.

This week, the HMO industry offers two Zacks #1 Ranked (Strong Buy) HMO companies and four Zacks #2 Ranked (Buy) HMO companies. Four additional HMO companies were Zacks #1 or #2 ranked last week. That makes for a total of 10 out of 13 total HMO companies in the last two weeks with strong potential for further share price appreciation. For more information, visit at.zacks.com.

Doctors Say That the Affordable Care Act Increases Healthcare Costs
Sixty-one percent of doctors say that complying with the ACA has increased their overhead costs, according to a report by Jackson Healthcare. Sixty percent say they do more administrative work due to the law, resulting in less time with patients. The law is also costing patients more, doctors say. Fifty-one percent of patients are delaying routine screenings because of the cost of high-deductible plans associated with the ACA. Richard L. Jackson, chairman and CEO of Jackson Healthcare said, “The ACA had good intentions, but failed to solve the major problem with healthcare – reducing costs. If we don’t do something about costs…,we are just rearranging deck chairs on the Titanic.”

Twenty-three percent of doctors say they are retiring, thinking of retiring or becoming part-time in 2015. Ninety percent attribute that decision to the ACA. Sixty-seven percent of doctors accept insurance plans sold in the exchange. Such plans are known to pay less than traditional insurance and in line with Medicaid, according to the survey. For more information, visit jacksonhealthcare.com.

House Passes Medicare Advantage Bill
On June 17th, the House of Representatives passed The Strengthening Medicare Advantage through Innovation and Transparency for Seniors Act of 2015 (H.R. 2570, available via umhealth.me/vbid-bill). The bipartisan legislation would establish a demonstration project allowing Medicare Advantage plans to use a principle called Value-Based Insurance Design (V-BID). The concept comes from University of Michigan research that aligns patients’ out-of-pocket costs, such as copayments, with the value of health care services.

If the bill becomes law, it would allow Medicare Advantage plans to lower copayments and coinsurance for beneficiaries, encouraging the use of high-value, evidence-based medical services to better manage chronic conditions. It prevents plans from increasing beneficiary cost sharing on any service. The legislation was originally introduced by U.S. Reps. Diane Black (R-TN), Earl Blumenauer (D-OR) and Cathy McMorris Rodgers (R-WA).

The bipartisan companion bill, the Value-Based Insurance Design Seniors Copayment Reduction Act of 2015 (S.1396), was introduced to the Senate on May 20th by U.S. Senators Debbie Stabenow (D-MI) and John Thune (R-SD). In addition to the Capitol Hill activity, V-BID was included in a recent Centers for Medicare and Medicaid Services (CMS) Request for Information to Innovate Medicare. To date, V-BID programs have been implemented by numerous private and public payers, employers, unions, and business coalitions nationwide. The accumulating evidence validates a central V-BID premise that reducing out-of-pocket costs for selected high-value medical services for certain patients can improve health outcomes, reduce disparities and potentially slow the growth of health care costs. For more information, visit ihpi.umich.edu.

Fewer Counties Have Zero Premiums Medicare Advantage Plans in 2015
While most Medicare beneficiaries in 2015 have access to Medicare Advantage plans with $0 premiums, the availability of these plans has been in decline since 2011. HealthPocket’s examination of government data found that Medicare Advantage plans with a $0 premiums in the United States dropped from 813 in 2014 to 726 in 2015, with 113 fewer counties having access to these popular $0 premiums Medicare Advantage plans.

The counties that lost $0 premiums Medicare Advantage plans were in 15 states: California, Hawaii, Idaho, Iowa, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, Oregon, Utah, Vermont, Washington, and Wyoming. Nebraska had the most counties in 2015 that lost zero premiums Medicare Advantage plans (36), followed by Montana (25), Idaho (23), California (12), and Vermont (8). The only states that did not have any $0 Medicare Advantage plans in both 2014 and 2015 were Delaware and Alaska.

HealthPocket also found that there were 16 counties that had no zero premiums Medicare Advantage plans in 2014, but gained access to these plans in 2015. These counties were in the California, Maryland, New Hampshire, New Jersey, Oregon, and Washington. Since 16 counties gained access to zero premiums Medicare Advantage plans and 129 counties lost access to zero premiums Medicare Advantage plans, there were 113 fewer counties with access to zero premiums Medicare Advantage plans in 2015.

Star ratings were higher (3.83 stars) for Medicare Advantage plans that had $0 premiums in 2015, but not 2014. Similarly the average rating for Medicare Advantage plans that had $0 premiums in both 2015 and 2014 was 3.84 stars. For more information, visit HealthPocket.com.

EVENTS
NAILBA Meeting
The National Association of Independent Life Brokerage Agencies (NAILBA) opened registration last week for the 34th annual meeting November 19 to 21 in Orlando. The meeting will continue to offer a streamlined schedule designed to promote networking opportunities. NAILBA’s Annual Meeting will attract more than 1,300 people including representatives from brokerage general agencies, life insurance carriers, and insurance industry vendors. For more information, visit nailba.org/nailba34.

CAHU Conference
The CAHU Health Care Summit & Expo will be held Tuesday September 29 and Wednesday September 30 in Universal City, Calif. For more information, visit cahu.org.

IN CALIFORNIA
Court Upholds Insurance Commissioner’s Revocation
The Court of Appeals upheld a decision by Insurance Commissioner Dave Jones to revoke the broker-agent license of Wellman Dale Shew, 55, of Fresno. The commissioner revoked Shew’s insurance license when the Department of Insurance learned that Shew had two misdemeanor convictions in California and Nevada for sexual misconduct. Shew installed a video camera in the bathroom of his Fresno area insurance agency office. Over several weeks, he secretly recorded a female employee while she used the bathroom. He was convicted in California of disorderly conduct (peeping). In Nevada, Shew was convicted of gross lewdness for taking topless photographs of a sleeping friend without her knowledge or consent.

Commissioner Dave Jones said, “Licensed agents and brokers have access to consumers’ private and personal information and they must be trustworthy and held to the highest standards of conduct in order to protect the public. Shew’s actions were an egregious violation of trust, therefore he should not hold an agent license in California.”

Shew appealed the commissioner’s order revoking his license. In January 2014, a Fresno Superior Court judge upheld the commissioner’s order. Shew then appealed the trial court’s ruling to the Court of Appeal. On June 1, 2015, the Court of Appeal, Fifth Appellate District, upheld the revocation of Shew’s insurance license. Shew is no longer a licensed insurance broker-agent.

Reactions to Supreme Court Subsidy Ruling
The U.S. Supreme Court ruled that nationwide subsidies called for in the Affordable Care Act are legal. The following are reactions from stakeholders:

  • Patrick Burns, president of the California Association of Health Underwriters: The Supreme Court got it right. California has a state-based exchange (Covered California), so nothing will really change here, but the clarification was very important to residents in the 34 states that utilize the federally facilitated health insurance marketplace in some form…Our hope is that state and federal policymakers will now turn their attention on efforts to truly reduce the cost of providing health care, something that the ACA has not fully addressed. Lawmakers and regulators need to look at and improve the portions of our health care system that work well and keep a variety of health insurance product options available to all. The employer-based system has reliably and effectively delivered quality health coverage to generations of Americans. And we as a nation need to work to preserve it.
  • Covered California Executive Director Peter V. Lee: Although Covered California enrollees were not at risk of losing their subsidies as a result of the Supreme Court decision, a ruling invalidating subsidies offered through the federal health exchange could have resulted in changes to the federal law, which could have affected California…The subsidies have helped millions of Americans, including individuals I have met whose lives were saved as a result of the care they received. With the support of federal subsidies, the majority of consumers enrolled with Covered California pay less than $150 per month for their premiums, with many tens of thousands of consumers paying less than $10 per month for coverage.
  • California HealthCare Foundation president and CEO Dr. Sandra Hernández: We hope that this ruling will hasten the conclusion of the seemingly endless political debate about the law. After the ACA was enacted in 2010, California government and industry leaders had the foresight to swiftly establish Covered California. That was a wise decision not only because the exchange now has 1.3 million enrollees, but also because the state exchange insulated Californians from the financial and health risks posed by this legal challenge.
  • The American Academy of Actuaries Academy Senior Health Fellow Cori Uccello: The…ruling upholding…preserved an integral component of the Affordable Care Act and averted significant disruptions to the individual health insurance market. In the loss-of-subsidy scenario, adverse selection would have been a serious concern, as relatively higher-cost individuals would have retained coverage, increasing average costs and premiums. While the legal challenge to subsidies has been decided, the Academy urges policymakers to assess any proposals that may be offered to modify or replace the ACA against these important market reform principles.

How Data Analysis Helped Exchange Carriers Drop Their Premiums
Analyzing state data on health care use by Covered California enrollees helped demonstrate that many were healthier and presented less risk to insurance companies than anticipated. This helped drive down premiums through the exchange in 2015, according to a study in the journal Health Services Research. “What was special about this effort is that we were able to give insurance plans something they did not have access to before. It gave them valuable information to better estimate their costs and offer more appropriate rates for consumers” said Covered California Chief Actuary John Bertko, one of the study’s authors.
Giving health insurance companies the data needed to estimate the amount they would pay or get from a special risk-adjustment pool helped them know they could reduce their rates in many cases. After receiving these findings as part of their negotiations with Covered California, health plans covering the majority of enrollees decreased their proposed 2015 rates, saving consumers tens of millions of dollars in potential premiums, the study stated.

Covered California Executive Director Peter V. Lee said that studying health care use by Covered California enrollees with chronic health conditions can yield tremendous benefits for enrollees and potential enrollees, because representatives of the exchange can use the data when negotiating with health insurance companies every year. “This represents the best of what a health insurance exchange can do: develop our own information about the health of our consumers so that we can come to the table as smart negotiators on their behalf, Lee said. This is one of the ways active purchasing works to ensure quality products at the best possible value,” he said.

The study was conducted by a team of researchers from the University of California, San Francisco, the Department of Health Care Services and actuaries at Covered California. As an active purchaser, Covered California chooses which plans and products to offer and negotiates rates in order to offer the best value for consumers. In contrast, most other state exchanges and the federal health care exchange accept all products that health insurance companies wish to offer, at the rates they want to charge, provided that they meet basic standards and have passed regulatory review.

Open enrollment for coverage starting Jan. 1, 2016, is scheduled to begin Nov. 1. Special enrollment for health coverage if someone has a change in life circumstances, such as moving or having a baby, continues year-round. Medi-Cal enrollment also continues year-round.  For more information, visit www.CoveredCA.com.

LIFE INSURANCE

Individual Life Insurance Sales Increase 8% in First Quarter 2015
Individual life insurance new annualized premiums increased 8% and policy count rose 5% in the first quarter, according to a LIMRA report. “This was a strong quarter for individual life insurance in the United States. Indexed and variable universal life insurance sales recorded double-digit growth in the three months of 2015, while whole life rebounded after stalling this time last year,” said Ashley Durham, assistant research director, LIMRA Insurance Research.”

Total universal life insurance (UL) new annualized premiums grew 7% in the quarter and represented 37% of all life insurance premiums sold in the first quarter 2015.

Indexed UL (IUL) sales drove UL growth, with new annualized premiums increasing 11%.  IUL sales now represent half of all UL premiums and 19% of all individual life premiums.

Lifetime guarantee universal life insurance (LTG) new annualized premiums increased 1%, the first positive growth recorded in two years.

Variable UL (VUL) premiums jumped 21% in the first quarter. According to the LIMRA survey, half of VUL writers experienced growth in the first quarter including 8 of the top 10. The top 10 writers now represent 87% of the VUL market. This the 10 consecutive quarter of positive growth for VUL but it still represents only 7% of total life sales.

Whole life (WL) new annualized premiums rose 9% in the first quarter 2015, enjoying the largest growth in absolute dollars. WL now represents 34% of the total life market. Term life insurance premiums grew 2% in the first quarter. This is the second consecutive quarter of growth for term. Half of term writers reported positive growth to LIMRA. Market share for term life insurance remained steady at 22% in the first three months of 2015. For more information, visit limra.com.

NEW PRODUCTS
PlanSource Adds MetLife
PlanSource now distributes MetLife’s portfolio of products through its benefit engagement system. The system can be administered by employers or configured as a public or private exchange using PlanSource OneMarket. Launched in 2014, PlanSource OneMarket provides standard benefit products and services from leading insurance companies in a marketplace where employees can shop for benefits in the same consumer-friendly way they shop for other products online. Through the PlanSource platform, consumers have access to 11 MetLife product lines, including traditional benefits such as basic and supplemental life, dental and vision, and ancillary benefits such as accident, hospital indemnity, and critical illness. For more information, visit plansource.com.

Training for Special Needs Financial Planning
MassMutual and The American College established the MassMutual Center for Special Needs. MassMutual’s $2.5 million investment establishes the first academic center of its kind, serving as the nation’s leading authority on life care planning for a person with a disability or other special needs. The Center is accepting enrollees for the Chartered Special Needs Consultant (ChSNC) designation. For more information, visit TheAmericanCollege.edu.

Tool to Help Clients Meet Insurance Goals
John Hancock Insurance launched a policy management solution, called “LifeTrack.” LifeTrack is available for free with John Hancock’s “Protection UL ’15” and “Protection UL” with Vitality policies. It will be rolled out to additional life insurance products throughout the year. Members get sent communications before their policy anniversary indicating how many Vitality Points they need to reach the next Vitality Status and increase their premiums savings. They also get a LifeTrack Annual Report that shows them why their premiums changed and how much they may have saved with the John Hancock Vitality Program. For more information, visit johnhancock.com.

Contact Management
Atmospheir is a new social address book that allows you to chat and exchange unified contact information with one ID. For more information, visit atmospheir.com.

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