4 Health Plan Trends for 2012

Originally published December 22, 2011.

What’s in store for health plans in 2012?

Health plans—at least, most of the big nationals—have money burning a hole in their pockets, and they are on the hunt for investments. Health plans specializing in government health insurance programs continue to be attractive acquisition targets but insurers also are looking for ways to diversify their holdings to influence the cost structure along the continuum of care.

Here’s how the year may play out for health plans.

1. Health insurers may be acquired by hospitals
It’s déjà vu again for provider-sponsored health plans. Back in the 1990s, with an eye toward upstream revenue, almost every self-respecting hospital had its very own health plan. That arrangement fell out of favor and hospitals dropped those health plans like the proverbial hot potato. Fast forward to 2012 and guess what?

With patient volumes and case mixes in decline, hospitals once again want to get involved in the financing end of healthcare delivery. Hospitals want to be able to control where dollars get spent for services and networks. That means owning a health insurance company. The nationals such as Aetna and WellPoint won’t be in play, but expect regional hospital systems to take a hard look at regional health plans. Medicaid plans, especially in states where managed care is being implemented, will also be attractive acquisition options.
 

2. Medicare Advantage will stay hot
Enrollment in Medicare Advantage plans is exploding as baby boomers, who have experience with managed care, turn 65 years old. CIGNA, Humana, UnitedHealth, and WellPoint each happily opened their wallets in 2011 to acquire MA plans. Expect interest in the senior segment to continue as insurers with strong cash positions compete for a share of this lucrative market.

These acquisitions can create an opportunity for commercial insurers to attract lifelong members who can be easily shifted to a Medicare Advantage plan at age 65. The MA market is fragmented, and analysts say it’s getting harder and harder for small MA plans to achieve those important economies of scale. Time is of the essence, as coding changes that will be implemented for hospital reimbursements beginning in 2013 will require costly investments in IT that will be tough for small MA players to afford.

3. Medicaid insurers will get hot
As state budgets flounder and Medicaid costs increase, states are turning to Medicaid managed care to try to control those program costs. Adding to the problem—or opportunity, depending on your outlook—is that as part of healthcare reform, Medicaid eligibility standards will expand in 2014 and 2015, with coverage available to all individuals under age 65 with incomes up to 133% of the federal poverty level.

Enrollment is expected to increase by 30%—adding about 17 million beneficiaries to the Medicaid rolls. The size of the potential market has the attention of commercial insurers, which are seeking turn-key acquisitions that provide an immediate presence in the Medicaid market. Meanwhile, existing Medicaid insurers are looking to expand their footprint. Either way, 2012 looks like a good year for Medicaid insurers who want to make a deal.
 

4. The spending spree will continue
Aetna recently announced that it has a jaw-dropping $1.3 billion set aside for acquisitions and stock repurchases in 2012. The giant health insurer didn’t provide any clues on what acquisitions it might be looking at, but the health insurance industry as a whole has been on something of a diversification kick, moving away from simply insuring care to the actual delivery of care.

Physician groups, clinics, and even entire health systems have been acquired as health plans seek to manage costs on the clinical side of the health delivery process. Expect more of these deals in 2012.

Health plans are looking for companies that can help them with medical management along the continuum of care. Humana’s recent acquisition of SeniorBridge, which manages care complex chronic care for older patients, is a good example. That will help Humana as it grows its Medicare book of business.

Finally, expect information services and data analysis to grow in importance as health plans try to increase administrative efficiencies while integrating new business lines.