Last month, health insurers reported on their third-quarter (Q3) financial earnings, offering insights on their yearly performance to date and commenting on the market and regulatory challenges they see ahead. While the picture provided by these reports is often limited and intended for financial analysts and investors, the information shared can help policymakers better understand the trends affecting the health insurance market. To identify common themes on insurers’ minds, we reviewed the quarterly filings and earnings call transcripts for seven publicly traded U.S. health insurers, including: Anthem, Centene, Cigna, CVS Health/Aetna, Humana, Molina, and UnitedHealth Group. The Q3 findings show that:
- Insurers’ marketplace business continues to perform well, with some seeing opportunities to grow the business in 2020;
- While insurers are monitoring a number of potentially significant policy changes, they are continuing with business as usual until more certainty emerges; and
- Insurers are exploring ways to rein in healthcare costs as the issue of affordability escalates, including investments in digital health and retail partnerships.
Insurers’ Marketplace Performance Remains Strong, With Some Planning to Grow in 2020
Among the insurers that offer ACA marketplace policies – Anthem, Centene, Cigna, and Molina – all reported that their marketplace business is strong and continues to perform as expected. Molina, for instance, commented that its business in Texas has been profitable and represents “an attractive growth opportunity,” while the success of its marketplace products in New Mexico prove “that you can run a really profitable exchange business without being in Medicaid” (referring to the fact that most Medicaid insurers tend to perform well in the marketplaces). It noted that it feels good about “growth prospects” for 2020 and that it is now paying market rate for broker commissions, which should help to enhance its growth in the future. Similarly, Centene reiterated earlier news reports that it aims to grow its marketplace footprint in its 10 existing states in 2020, commenting that its marketplace member retention remains high. Anthem, however, is taking a more cautious approach. It explained that it is “continuing to target expansions [,]” which will be “largely based upon geographies where [it] can partner with key providers at the right economies [.]” It noted that in some areas, its competitors are simply “better positioned” and it, therefore, will not enter markets where it cannot offer the most competitive product. This aligns with previous findings suggesting that insurers’ marketplace participation is sometimes dependent on providers’ willingness to contract at a favorable price.
It’s Business as Usual While Public Policy Changes Remain Up in the Air
Insurers commented on the impact of a wide-range of regulatory and health reform initiatives, including the expansion of the use of health reimbursement arrangements (HRAs), ongoing litigation regarding the public charge rule and the constitutionality of the ACA in Texas v. United States, and the return of the health insurer tax. For the most part, insurers reported that it is business as usual as they wait to see how any policy changes may unfold.
For example, when expanding the use of HRAs was proposed, most insurers argued that stronger non-discrimination provisions were needed to ensure the stability of the individual market since there is a risk that high-cost employees may shift from the employer-based to the individual market. However, UnitedHealth – which does not participate in the ACA marketplace – commented that it is supportive of HRAs, but would like to see them integrated with a broader set of insurance products than “the higher cost exchange based offerings that are out there today.” The company predicts that the expanded use of HRAs may indeed cause the suggested “migration” to individual products and noted that it is “well-positioned” to offer such products to consumers. This could mark a change in the company’s strategy, as UnitedHealth has largely sat out of the individual market in recent years.
Several insurers received questions about how the public charge rule may impact insurers’ Medicaid business, since experts believe that the rule could have a chilling effect on Medicaid enrollment, prompting consumers to disenroll due to confusion and fear. However, UnitedHealth and Anthem commented that they have not yet seen a “material impact” of this policy to-date.
Insurers received hardly any questions about the possibility that the ACA could be struck down in Texas v. United States, though Centene commented that “it’s not something we spend any time worrying about.” Centene expressed optimism that the lower court’s adverse ruling will be overturned or that the case “will go to [the] Supreme Court quickly.” While it is closely monitoring the outcome of the litigation, it reasoned that “the demand for affordable high-quality healthcare coverage will remain [a] constant and durable driver” of support for the ACA’s market. Notably, there was also little interest among investors in Maine Community Health Options vs. U.S., in which insurers are suing the government over $12 billion in unpaid risk corridor payments. Oral arguments in the Supreme Court this week suggest the court could rule in favor of the insurers, resulting in a substantial financial boost.
Finally, insurers continued to advocate for the suspension of the health insurance industry fee (HIF), which is expected to add $15.5 billion to insurers’ tax bill for 2020. Insurers have widely reported that this tax will be passed onto consumers in the form of increased premiums. Indeed, UnitedHealth commented that the return of the tax is “unfortunate, given that healthcare already costs too much and [it will] be adding this burden on top [.]” Humana lamented that “given the magnitude” of the tax, it reduced its workforce by 2 percent (~2,000 jobs impacted), and says that members “will see an increase in premium or reduction in benefits next year [.]” On the other hand, Centene noted that the tax has already been factored into its marketplace pricing. Insurers’ advocacy efforts seem to have paid off, as negotiations on the fiscal year 2020 spending bill include a likely repeal of the tax in 2021.
Insurers, Concerned With Increasing Costs, Invest in Digital Health & Retail
Insurers broadly expressed their concerns with increasing health care costs and agreed that there is a serious “affordability challenge” in the market, which is spurring the need for product and delivery changes. For example, while employers once tried to curb costs through the use of high-deductible health plans, Cigna commented that some employers “have concluded that they pushed . . . to the outer limits of cost sharing and . . . are actually stepping back from that a little [and] changing their contribution strategies by wage level [.]” Cigna explained that employers are now “much more actively engaged” in health management programs, like those that address depression and stress behavioral science. Humana agreed that its employer base “is really crying out for a different offering.”
As a result, insurers have been increasing their investments in digital health and forming partnerships with local retailers who can provide care outside of the traditional provider setting at a lower cost. For example, CVS/Aetna reported that their newly launched HealthHUBs, which provide primary care in select states, have “outperform[ed] their control group with higher script volume and MinuteClinic visits along with higher front store sales, traffic, and store margin.” CVS/Aetna notes that “80% of the services that can be provided by a primary care physician” can be provided at its MinuteClinics. This early success has prompted the company to rollout 1,500 hubs by the end of 2021. Centene highlighted a similar partnership with Walgreens, which aims to improve pharmacy benefits management, while Humana has partnered with Walmart to improve the “local convenience” of pharmacy care.
Take-Away: Insurers’ Q3 earnings show that many continue to experience financial stability in the individual market and plan to grow their offerings in 2020, despite ongoing policy uncertainty. While insurers are closely monitoring major policy changes that could come to fruition over the next quarter, they remain cautiously optimistic that the new marketplace has demonstrated its value add. As they wait for the dust to settle on these possible changes, insurers are exploring ways to confront the issue of affordability more broadly. Most recently, this has included significant investments in digital health and partnerships with local retailers. Insurers hope to see the benefits of these investments over the next year.