Several of the nation's biggest health insurers have hiked earnings expectations for 2015 after blowing past first-quarter forecasts and heading into a much more stable future than they faced this time last year.
A better understanding of the health care overhaul's impact, lighter Medicare Advantage funding cuts and old-fashioned business growth all helped deliver a confidence boost to much of the sector.
KNOWING THE LAW
The federal overhaul launched a major coverage expansion in the fall of 2013, when public insurance exchanges debuted with the promise of providing millions of new customers who receive help buying coverage through income-based tax credits. But problems with those online exchanges slowed enrollment, and insurers still didn't have a full picture of who was signing up for their coverage deep into last year's first quarter.
They also weren't certain about the risk they faced from this new population.
A year later, enrollment gains are more certain and companies are starting to understand those new customers. The Blue Cross-Blue Shield insurer Anthem Inc. said Wednesday that it has signed up nearly 900,000 people on the exchanges. Competitor Aetna Inc. has added more than 950,000.
Insurers also have a better understanding of how the law's costs, which include fees and medical claims, affect their income statements.
"Overall costs have settled at a level that's been very consistent with our expectations," Aetna Chief Financial Officer Shawn Guertin said.
SURVIVING CUTS
Privately run Medicare Advantage plans are a growing source of business for UnitedHealth Group Inc., Humana Inc. and other insurers, but they've been pressured for a few years now by funding cuts. The federal government is scaling back funding for the coverage in part to help pay for the overhaul. In response, insurers have had to trim benefits and in some cases leave markets in order to preserve profitability.
They had to do more of that heading into 2014, when plans faced cuts ranging from 5 percent to 7 percent, said Thomas Carroll, who covers the industry for the investment bank Stifel. This year, insurers are probably dealing with a reduction of around 3 percent, on average, although that varies by plan.
"The heavy lifting was done in 2013 getting ready for 2014," Carroll said regarding plan adjustments. "That ... is probably enough to deal with this year."
IMPROVING BUSINESS
Operating earnings soared 35 percent for UnitedHealth's health insurance business in the first quarter. The nation's largest insurer also saw strong growth from its Optum segment, which provides pharmacy benefits management as well as data technology services and runs clinics and doctor's offices.
Anthem recorded a 25 percent Medicaid enrollment gain compared with last year's quarter. The overhaul is helping to expand the state- and federally funded program for disabled people and those over age 65.
In addition to booking business gains, insurers also are keeping medical costs under control. That's their biggest expense, and it continues to grow moderately, about as companies expected. Insurer profitability gets squeezed when medical costs grow faster than expected after they've set coverage prices.
That moderate cost growth could change by fall. People with high-deductible health plans tend to save bigger medical expenses for later in the year, after they've paid their deductibles and will have more of the bill covered by the insurer.
Humana Inc., the only top insurer to miss analyst expectations so far this quarter, said Wednesday that it saw signs that hospital admissions — a pricey form of care — were starting to pick up.
"Everybody is calling for cost trends to increase this year, but they still remain below longer-term trends," Carroll said.
