Following full implementation of the Affordable Care Act (ACA) two-and-a-half years ago, nearly 12.7 million Americans have signed up for a health plan through the insurance marketplaces. Nevertheless, much ink has been spilled—and understandably so—over whether the law’s new marketplaces are stable and sustainable. In the media, at least, these discussions have intensified following news that UnitedHealthcare (United) has decided not to participate next year in most of the marketplaces in which it currently sells plans.
United is the nation’s largest insurer; however, it has not played a major role in driving competition in many of the marketplaces and its share of enrollment has been modest. To gain a wider perspective on marketplace stability, we reviewed the first-quarter earnings calls and regulatory filings of some of the largest, publicly traded insurers that participate in the marketplaces, including Aetna, Anthem, Centene, Cigna, Humana, Molina, and United.1 These communications shed light not just on a company’s financial performance, but also on major business developments and strategic thinking, making them useful resources for understanding a company’s experiences in and perspective on its market.
What Are Insurers Telling Investors?
Insurers Aren’t Heading for the Exits. While United suffered significant losses on its ACA products, only one other insurer we monitored, Humana, explicitly suggested it may exit certain markets in 2017. Though insurers are likely to make changes to the number of products they offer and the markets they participate in, earnings calls and filings show that most of the large, publicly traded insurers remain committed to the marketplaces. Anthem will continue to participate in 14 marketplaces and expressed optimism that its proposed acquisition of Cigna could help with future expansion.
Marketplace Membership Remains Stable. Consistent with the overall increase in marketplace enrollment, most insurers experienced membership growth in their marketplace business relative to the fourth quarter of 2015. For example, Aetna and Anthem reported enrollment above expectations, with gains of about 200,000 and 184,000 respectively, while Molina experienced the largest total membership gain during sequential quarters—in part because of 420,000 new marketplace enrollees—in the company’s history. Most also gained or held steady compared to this time last year, though not all did: Humana’s ACA-compliant individual market plans have lost approximately 180,000 members since the first-quarter of 2015, partly because of plan terminations that resulted when some enrollees couldn’t provide documentation to confirm marketplace eligibility.
Many Insurers See Opportunities for Growth. In the first two years of marketplace coverage, many insurers have reported losses in their ACA-compliant individual market business. These early results have prompted companies to make changes to product offerings and pricing, and in some instances, to exit markets. Even so, most insurers continue to assert that the marketplaces offer value and claim they are, for example, “well-positioned” (Anthem) or in a “very good place” (Aetna) to grow and sustain this business over time.
Several insurers, including Anthem, Aetna, and Molina, used their quarterly call to remind analysts that they remain committed to the marketplaces, with the understanding that this line of business may not be profitable for some years. For example, Molina explained, “We have never expected our marketplace product to perform better than our Medicaid business, nor operate at significantly better margins over the long term.”
Risk Pools Continue to Evolve, But Some Are Experiencing a Healthier Mix Than Others. While evidence suggests, unsurprisingly, that marketplace consumers have been sicker, on average, than enrollees in the nongroup market prior to the ACA, the risk experiences of individual insurers have varied. Molina, for example, commented that its marketplace enrollees have been comparatively healthy, while Centene noted that its risk mix remains consistent with expectations. Anthem cautioned that it would have a clearer sense of its risk profile in the next few months, as claims come in, but reported it “like[s] what [it’s] seeing” so far and offered the view that the market “is starting to recognize the true cost” of insuring marketplace enrollees.
Challenges Persist. Insurers also used their calls to flag perceived challenges to their marketplace business and, occasionally, to offer regulatory changes that might ameliorate them. For example, two insurers argued for loosening rules governing health plan design, a suggestion in some tension with federal efforts to strengthen consumer protections around networks and plan cost-sharing features. Several others reiterated calls for federal regulators to consider changes to the ACA’s risk-adjustment program or to tighten eligibility standards for special enrollment periods—two areas that officials have said they are reassessing.
Recent insurer investor calls and filings place United’s market moves in context, and remind us that the insurance industry doesn’t have a monolithic perspective on the marketplaces. The truth is that not all insurers will thrive in this new and still developing marketplace, where consumer protective rules reward effective risk management and prohibit the discriminatory underwriting practices that insurers could rely on in the past. Nevertheless, there are clearly insurers that see business value in marketplace participation and are committed to the underlying principles of the ACA. These companies will be important partners in achieving the ACA’s goals going forward.