Second-quarter numbers for payers showed a steady engine that has withstood the strain of the past two years, most notably (the failed) Republican efforts to tear up the Affordable Care Act and other big moves from the Trump administration.
Insurers appear to have found stability and responded by expanding offerings, pulling back on others, moving into new subsectors and partnering with or gobbling up other companies.
Payer underwriting margins were strong overall with no apparent ramp up in underlying medical consumption, David Windley, managing director for healthcare equity research at Jefferies in Nashville, told Healthcare Dive.
"2Q is a critical quarter for (managed care organizations) because it is the point at which management has seen enough actual data on claims payments to assess product pricing and any unusual trends," he said.
Here are five trends and highlights from payers' earnings reports in the past few weeks.
1. Payers love Medicare Advantage
Payers remain bullish on Medicare Advantage. Not only are traditionally strong MA payers growing their offerings, but more minor players are also expanding in the market.
UnitedHealth Group and Humana continue to have the two largest MA member populations. UnitedHealth’s MA population increased 10.4% year-over-year after picking up 450,000 new members. UnitedHealth views MA as a significant growth area and company officials said its long-term group rate is about 8%.
Meanwhile, MA drove Humana’s second-quarter earnings, which included a 5% increase in quarterly consolidated revenues. In a move to boost its MA plans, Humana recently purchased a 40% share of Kindred at Home with the right to buy the remaining interest over time. The payer expects that adding Kindred will help with end-of-life costs.
Another insurer growing its MA footprint is WellCare Health Plans. Medicare premium revenue grew more than 17% for WellCare, which offers managed Medicaid, Medicare and Medicare pharmacy drug plans.
The company said the increase was related to buying Universal American and organic growth. The Tampa-based payer ended the quarter at about 510,000 Medicare members, which was a 5% increase year-over-year.
WellCare's pending acquisition of Meridian Health Plan for $2.5 billion is also expected to grow membership in Illinois and Michigan, as well as pick up MeridianRX, its pharmacy benefit manager business. "It will position us for future growth opportunities in government-sponsored programs, and we expect the transaction to be accretive," Kenneth Burdick, WellCare’s CEO, said during the company's Q2 call.
Anthem also spoke positively about its MA business, reporting a 14% operating revenue increase in its government business for the quarter. That was thanks to purchasing Health Sun and America's 1st Choice as well as growing its Medicare membership organically.
Medicare enrollment grew by 254,000 year-over-year and membership in Medicare Advantage Part D plans skyrocketed by 37%. Anthem finished the quarter with 933,000 Medicare Advantage Part D members.
Anthem CEO Gail Boudreaux said the company plans to build its membership further by increasing its county footprint while finding organic growth where it already operates. She added that the Blues payer has found that members in their commercial plans want to transition to its MA plans once they reach retirement age.
"We have a strong pipeline of commercial customers who want to stay Blue," Boudreaux said.
2. The individual market isn't so bad after all
The days of widespread double-digit premium increases and payers fleeing the ACA exchanges appear to be over — or at least on hold.
During second-quarter earnings calls, multiple payers spoke of the ACA exchanges positively. Centene, which expanded its ACA footprint to 16 states this year, pointed to the exchanges as a major reason for its quarterly revenue growth. The payer, which has a large managed Medicaid population, has found success in ACA plans.
Centene is also looking to add new states next and grow further in the states where it's already located.
Another payer that focuses on at-risk populations traditionally, Molina Healthcare, said it has seen better-than-expected ACA plan membership and risk-adjusted revenue.
Molina CEO Joseph Zubretsky said the risk profile of its reduced membership is also better. Last year, Molina pulled out of Wisconsin and Utah. Now, the payer is contemplating a return to those states and expanding to North Carolina.
"The issues we had in Utah and Wisconsin were mostly related to a network that was too wide and too highly priced. And the team is working at developing a network that will support the prices that we file … We're going to watch every bit of data emerge on 2018 to make sure we have this right and then we'll make the call at that point," Zubretsky said during the call.
Even Anthem, which pulled back on the ACA exchanges along with other big-name payers last year, is looking at potential minor county expansions for 2019. Boudreaux said the insurer isn't considering significant expansion, but it may move to abutting counties while focusing on areas with current Anthem individual plans.
"I think you'll see some county expansions, but I think more focused on the areas that we've been this year, so not a major rescaling, but we are pleased with the performance. And again, it is all about stability and more certainty around that marketplace. But again, this year was solid," she said.
Despite the better-than-anticipated ACA numbers, not all payers are interested in returning to the exchanges. UnitedHealth Group ended the quarter with 60,000 fewer individual plan members than a year ago.
UnitedHealth Group CEO David Wichmann said the nation's largest private payer, which has 480,000 individual plan members, will continue a "modest presence" in that market. "Nothing has fundamentally changed since we made our decision," he said about the exchanges. "It was the right decision for us."
3. Commercial market results fell for some big players
Multiple payers have seen a drop in their commercial membership over the past year. UnitedHealth Group, Anthem, Humana and Aetna all reported decreases.
UnitedHealth Group said more commercial plans are moving to risk-based contracting.
The payer's risk-based offerings increased by 50,000 members, while fee-based products decreased by 60,000. That's part of a trend that Wichmann predicted during the first-quarter call in April. Wichmann said half of Americans will get care from a physician with a value-based contract within a decade.
Meanwhile, two payers, Humana and Aetna, reported that what companies want from payers is changing, especially small businesses. They're seeing small group companies moving to contracts to perform administrative duties only.
Humana's administrative services only plans increased by 3% to 458,800 members. The payer said small group membership made up just 7% of group ASO membership a year ago and 12% at the end of 2017. It was 18% at the end of the second quarter.
Humana's commercial membership dropped 5% to slightly more than 1 million members as it lost large group accounts in self-funded accounts, but more ASO plans partially offset the loss.
Not all payers are seeing commercial plan decreases. Cigna picked up 329,000 customers year-over-year and ended the quarter with 16.2 million enrollees. "All the indicators we're seeing ... continue to reinforce [that] we see a very attractive growth outlook in the commercial space in 2019," Cigna CEO David Cordani said.
Cigna has focused more on commercial plans after CMS temporarily suspended the payer from offering MA plans. Cigna got the OK to sell those plans again last summer.
4. Payers are looking at public plan opportunities
While payers are seeing sagging commercial plan membership, they're finding growth potential in managed Medicaid.
Centene recently purchased Fidelis Care for $3.75 billion, which gives the payer the fastest growing Medicaid managed care company in New York and second fastest in MA. Fidelis' 1.6 million members are spread across the ACA, MA and Medicaid markets. Centene expects to see more than $11 billion in revenue from Fidelis.
WellCare's purchase of Meridian will make it the largest Medicaid payer in membership in Michigan and Illinois, where it has 508,000 and 565,000 members, respectively. WellCare said the deal will put it in the leading market position for six states.
WellCare will also grow Medicaid membership after being the sole winner for Florida's Children's Medical Services contract. The company expects the contract will increase its Florida Medicaid annual revenue stream by $1.5 billion.
Molina picked up nearly 70,000 members in the second quarter after a recent statewide Illinois contract.
There are other Medicaid opportunities for payers too, as more states show an interest in expanding Medicaid. Boudreaux said Virginia's upcoming Medicaid expansion brings 400,000 possible members. Maine voters also approved Medicaid expansion last year and a growing number of states are putting expansion on the ballot this fall.
However, it is not all positive news for Medicaid payers. Humana's state-based contracts membership, which includes dual-eligibles, decreased by 13% year-over-year. The decrease came after the payer didn't participate in Illinois' Integrated Care program and a Medicaid membership drop in Florida. That said, Humana expects improved Medicaid membership next year after a new Florida contract.
5. Industry is in good financial shape
The second-quarter reports show that payers (and most healthcare companies, actually) are doing well financially. Axios reported that publicly-traded healthcare companies enjoyed billions of dollars of profits in the second quarter. In fact, they’re making more than in Q1, especially pharmaceutical companies. Those numbers don't include nonprofit hospitals, which face their own challenges.
Two financial numbers that stand out are the revenue results for Aetna and Molina. Aetna stayed stagnant, but it's also in the middle of the CVS Health merger. Plus, it enjoyed a nearly 8% profit margin in the quarter.
Molina, meanwhile, went through upheaval over the past year when it ousted CEO Mario Molina and CFO John Molina, the sons of the company's founder. The payer also pulled back on the exchanges. Hence, the revenue drop.
Looking ahead to Q3, Windley expects more of the same for payers. He said insurance companies will begin to publicly discuss their 2019 plans during the third-quarter calls, including potential MA growth.
Here's a breakdown of important metrics to show how payers did in the second quarter:
Revenues: $15.6 billion
Compared to 2Q 2017: No change
Profit: $1.2 billion
Net profit margin: 7.8%
Membership: 22 million
Revenues: $22.7 billion
Compared to 2Q 2017: Up 2.3%
Profit: $2.4 billion
Net profit margin: 5.2%
Membership: 39.5 million
Revenues: $14.2 billion
Compared to 2Q 2017: Up 19%
Profit: $300 million
Net profit margin: 2.1%
Membership: 12.8 million
Revenues: $11.5 billion
Compared to 2Q 2017: Up 10%
Profit: $193 million
Net profit margin: 1.4%
Membership: 16.2 million
Revenues: $14.3 billion
Compared to 2Q 2017: Up 5%
Profit: $193 million
Net profit margin: 1.4%
Membership: 16.6 million
Revenues: $4.9 billion
Compared to 2Q 2017: Down 2.3%
Profit: $202 million
Net profit margin: 4.1%
Membership: 4.1 million
Revenues: $56.1 billion
Compared to 2Q 2017: Up 12.1%
Profit: $2.9 billion
Net profit margin: 5.2%
Membership: 48.8 million
Revenues: $4.61 billion
Compared to 2Q 2017: Up 7.4%
Profit: $172 million
Net profit margin: 3.9%
Membership: 4.4 million