Major insurers’ reliance on Medicaid, Medicare revenues could be used to boost ACA participation

Twitter icon
Facebook icon
LinkedIn icon
e-mail icon
Google icon
 - Insurance Premium Hikes

The largest health insurers—UnitedHealthcare, Aetna, Anthem, Cigna and Humana—are getting nearly 60 percent of their total combined revenue from Medicare and Medicaid plans, according to a Health Affairs study, with that money more than doubling since the Affordable Care Act (ACA) was passed.

The study was authored by New York Academy of Medicine scholar Cathy Schoen, MS, and Sara Collins, vice president of health care coverage and access at the Commonwealth Fund. Looking at data from these insurers’ annual corporate filings with the Securities and Exchange Commission, the study showed that between 2010 and 2016:

  • Total membership for the five insurers grew from 102 million to 125 million, covering 43 percent of the total insured population in the U.S.
  • Medicaid membership grew from 6.9 million in to 15.3 million.
  • Medicare membership grew from 5.9 million to 10.1 million.
  • The combined firms’ Medicare Advantage market share grew to 52 percent.
  • Combined revenue from operating Medicare and Medicaid plans grew from $92.5 billion to $213.1 billion.

In 2010, the private sector accounted for most of the insurers’ revenue ($116.9 billion vs. $92.5 billion from Medicare and Medicaid). By 2013, revenue from government programs ($146.3 billion) had overtaken the private revenue ($130.3 billion) and the gap continued to widen every year through 2016, when $147.6 billion in revenue came from private sector business and $213.1 billion came from Medicare and Medicaid.

“In effect, these national insurers have become significant agents of publicly sponsored programs, acting on behalf of the federal government and states to purchase and arrange medical care on behalf of beneficiaries,” Schoen and Collins wrote.

Aetna and Cigna were exceptions, as the private sector still made up a majority of their revenue in 2016.

At the same time, the insurers moved from at-risk insurance products, turning towards administrative services only (ASO) arrangements where they provide claims and network management services but assume no risk for medical claims. By 2016, the five insurers had between 70 to 87 percent of their non-Medicare and Medicaid membership in ASOs, with Cigna having the highest share—11.4 million of its 13.7 million members are in these arrangements.

Despite the opening of the ACA exchanges, the insurers didn’t greatly expand their membership share from the individual share. Anthem, for example, reported fewer individual market members in 2016 (1.7 million) than in 2010 (1.9 million), before the exchanges had opened. Humana saw a spike in the individual market segment between 2010 and 2014, the first year the exchanges were open, but membership had dropped to 700,000 by 2016. Several of the insurers didn’t report individual market membership separately.

These insurers have largely retreated from ACA markets, with UnitedHealthcare, Aetna and Humana all have scaled back their participation in either 2017 or 2018, citing heavy losses from their participation. Anthem had also pared back its offerings, while jumping into markets in Virginia where it would be the lone exchange insurer.

“Substantial growth in Medicare and Medicaid membership and revenues from serving public beneficiaries have bolstered corporate profits, largely offsetting losses in the individual market during the early years of ACA marketplaces,” Schoen and Collins wrote.

The growing dependence on those public-sector revenues could utilized as leverage by policymakers. Schoen and Collins suggested state or federal legislators require insurers which wanted to participate in Medicare or state Medicaid programs would have to offer individual market plans as well.

“Such tying policies could be nuanced for larger companies with substantially private lines of business (such as Cigna) and companies with mostly public lines of business (such as Humana) to enable insurers to serve multiple market segments and allow time for markets to converge,” they wrote. “Requiring insurers that participate in Medicare Advantage in a given area to also serve the area’s marketplaces would strengthen state-level efforts to grapple with market stability and enhance the viability of the insurance marketplaces.”

This isn’t an entirely new idea. Both Nevada and New York have this kind of “tying” requirement. In Nevada’s case, it didn’t stop Aetna from withdrawing from the state’s ACA exchange, as it said Nevada’s Medicaid managed care program didn’t have enough enrollment to make the proposition worthwhile.

Rather stabilizing the individual market, Schoen and Collins said the approach runs the risk of transferring instability to Medicare and Medicaid markets if these large insurers reject “tying” requirements or demand larger payments to remain in a state.

“The interdependence of public programs and private insurers offers the potential to address the instability of individual insurance markets,” they concluded. "Yet unless dominant insurance companies see themselves as public agents in for the long haul and willing to accept slim margins from publicly sponsored insurance programs in exchange for volume, the nation may face instability and volatility in both private markets and public insurance programs.”