Despite industry disruptions, health insurers have managed to keep on their feet over the past year of disruptions. Rising enrollment and top-line growth, development of ancillary business, product modifications, improved service, demographic changes, expansion of international operations, better claims handling, growth of new business units, mergers and acquisitions and a strong capital position have better armed insurers to fight industry woes and emerge as winners.
The same is evident from a strong stock market performance by the industry, as seen by the 54% gain in a year’s time compared with the S&P 500’s gain of 24%.
Let’s take a look at how insurers fared recently.
Decline in Uninsured Rates
Over the past six years, the nation’s uninsured rate has gone down, thanks to the Affordable Care Act (ACA) mandates. According to a recent report from Gallup, the percentage of U.S. adults without health insurance was 12.2% in the fourth quarter of 2017.
It remains well below its peak of 18.0% measured in the third quarter of 2013, prior to the implementation of the ACA’s healthcare exchanges and the requirement that most adults have health insurance or be subject to a fine, commonly known as the individual mandate.
Health insurers have capitalized on this surge in insured rates by raking in members, who added to their top-line growth. Most of the insurers have reported a secular rise in enrollment and revenues since 2010, confirming the fact.
Medicare Advantage, a Cash Cow
Medicare Advantage (MA) plans, which were introduced by the government some years ago to rein in rising costs of Medicare, the main government program for retirees, are administered by private insurance companies. The plan is rightly called Medicare Advantage, because of the extra frills provided in it by health insurers to make it more appealing (compared to the traditional Medicare) to customers.
Health insurers are reimbursed a certain amount per enrollee from the government in return for the care provided by the insurer. This reimbursement has been quite attractive, and insurers — via their measures such as preventive healthcare and accountable care organizations — have been able to maintain profitability in these plans. This business has proven to be a cash cow for the insurance industry.
Players’ attractiveness for MA business is increasing, fueled by demographic changes. With more baby boomers reaching retirement age, the number of people eligible for Medicare is projected to surpass 70 million individuals by 2024, up from 60 million at present, with gross spending for Medicare expected to reach $1.2 trillion by 2024, up from $770 billion projected for 2018.
