Health insurers 2012 Earnings: from amednews

Health insurers report 2012 earnings with eyes on ACA in 2014  - By BOB COOK, amednews staff — Posted Feb. 18, 2013

During health insurance companies’ discussions with stock analysts about what happened in 2012 and what they expect to happen in 2013, much of the talk instead turned to 2014.

As with 2012, company executives said, 2013 is expected to be a year of investment and positioning for the next year, when the main coverage expansions of the Affordable Care Act will be implemented in full. Plans cite ACA mandates for most individuals to obtain insurance or pay tax penalties, expansion of federal assistance for purchasing health plans, and new insurance marketplaces as factors that will provide them with growth opportunities.

“A lot of change in ’14,” David Cordani, president, CEO and director of Cigna, told investors during an earnings conference call. “But as we talked about, net-net, the change in disruption in the marketplace, we see as creating more opportunity than disruption for us.”

The growth is expected even though insurance companies, awaiting federal and state government decisions on health insurance exchange implementation, aren’t sure when those marketplaces will start and exactly how they will work. Companies said they do know they only will participate in those exchanges that are “fairly regulated” and are profitable, said UnitedHealth Group President and CEO Stephen Hemsley.

In 2012, the second full year in which health insurance companies have been required to spend a minimum of 80% or 85% of premium dollars collected on health care, depending on the plan, the seven largest publicly traded insurers were about evenly split on profit growth. Cigna, Health Net, UnitedHealth Group and WellPoint recorded profits from those in 2011, while Aetna, Coventry Health Care and Humana recorded declines. All companies reported rising revenue except United, where revenue declined 1.1%.

Profit factors

For some companies, profit changes were affected by one-time events (such as an accounting change by Aetna that cut profits by $941 million) or recent acquisitions (such as Cigna’s gain being boosted by an acquisition of HealthSpring, a Medicare and senior care coverage company). All companies noted that in 2012, and for 2013, they would make investments that might keep down earnings slightly but would position them to be strong for 2014.

For example, Humana said it is putting more money into building more integrated delivery systems to cut the cost and increase the quality of care by continuing to boost membership in its HMO. Aetna is particularly active in accountable care organizations, announcing during its conference call that it has signed agreements for 17 ACOs, with an additional 32 letters of intent in place to form more, and “a pipeline of over 200 opportunities.” Aetna also is expanding its government business through a $7 billion acquisition of Coventry, a deal scheduled to close in mid-2013.

WellPoint noted the December 2012 finalization of its $4 billion deal to acquire Medicaid managed care company Amerigroup, which WellPoint said “fits well with our strategic plan to position ourselves for a significant shift towards government-sponsored business.”

In particular, WellPoint is betting on Republican governors, as well as Democrats, pushing to expand Medicaid under the ACA. Some Republicans have said they don’t want to expand the program because of the cost to states. But Richard C. Zoretic, WellPoint executive vice president and president of Medicaid programs for the insurer, said the company is working under the assumption that “in the long run, the economic benefit to the states will be such that most states will eventually expand Medicaid, and we’ll see significant growth not just in 2014, but beyond in the [Medicaid] space.”


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