Payers' Optimism Tempered By Economic Realities

During their second-quarter earnings calls in July and August, senior executives at major health plans were upbeat about opportunities in the healthcare benefits business: Medicaid and Medicare enrollments are expected to grow, while commercial accountable care organizations hold the promise of reducing the costs of care.

That optimism, however, is tempered by economic reality.

During the calls the executives conceded, that the job market remains weak, which impacts health plan membership growth. In addition there is increased competition for a share of a shrinking commercial market. Meanwhile, a promising Medicaid market is constrained by state budget woes and Medicare funding remains uncertain.

Their challenge is to work within this system.  During the earnings calls company officials outlined the steps they are taking to maintain revenue streams and deliver value to their providers and members.

Here are some of the highlights:

Aetna
Q2 Profit: -15%
Analyst expectations: Beat
Forecast: Positive

The insurer is hanging its hat on its Accountable Care Solutions (ACS) business, which is developing a nationwide network of accountable care organizations. Thanks to increased demand, the company is accelerating its spending on the business.

During the second quarter Aetna announced an expanded relationship with Banner Health Network in Phoenix and new ACO partnerships with Hunterdon Healthcare Partners in New Jersey and Aurora Health Care in Wisconsin. It also has a joint venture underway with ACO partner Inova Health System to create Innovation Health Plans, which will offer products in Northern Virginia.

Aetna officials say the ACO arrangements provide the insurer with a 10% to 15% premium advantage over the average price point of competing products.

But don't look for Aetna to jump into the acquisition fray to grow its Medicaid membership. For now Aetna will stick to organic growth. CEO Mark Bertolini told analysts the insurer isn't interested in "bulking up Medicaid at the current prices of those assets."

Cigna
Q2 Profit: -2.8%
Analyst expectations: Beat
Forecast: Positive

Cigna is focusing on physician engagement to improve health outcomes and reduce costs by introducing its own version of the commercial ACO and expanding its successful HealthSpring model.

The proprietary Collaborative Accountable Care (CAC) program is an insurer/physician partnership that includes clinical support and data to enable physicians to add value to the care they provide. Cigna has 32 CACs in place, including 10 added in July alone. Its goal is to have 100 CACs serving one million members in place across the United States by 2014.

HealthSpring, the Medicare Advantage plan acquired by Cigna in 2011, is being rolled out to selected commercial clients. Cigna officials said the plan's physician partnership model, with its tightly aligned incentives and clinical management programs, is attracting the interest of employers seeking to control healthcare costs for their 65 and older employees and retirees.

The insurer is making strategic acquisitions to expand its product line. It is in the process of acquiring Great American Supplemental Benefits Group, a large manufacturer, distributor, and marketer of supplemental health insurance products.

Cigna says it will continue to develop its international business in India and Turkey through direct to consumer distribution channels. Its international focus is areas with significant middle class growth potential.

Humana
Q2 Profit: -23%
Analyst expectations: Lower
Forecast: Mixed

Humana completed the acquisition of SeniorBridge in July 2012. This is a chronic care provider that offers in-home care to seniors with chronic diseases. Humana officials expect SeniorBridge to help reduce hospital readmissions by 50%.

The insurer is making significant investments in clinical nurses to increase participation in its acute and chronic care programs for seniors. Humana Cares, a telephone-based chronic care management program, is used by more than 50% of its senior members with chronic conditions and has reduced hospital admissions by 33%

But Humana is struggling with higher-than-expected medical cost trends, which it attributes to the preventive care provisions of the Patient Protection and Affordable Care Act. During the first six months of 2012 wellness visits per 1,000 members increased by 200% while the rate of routine physicals increased by 22%.

Company officials acknowledge that they did not expect the immediate and extensive utilization increases associated with the PPACA provisions. The insurer is adjusting its 2013 cost structure to accommodate the increases.

UnitedHealth
Q2 Profit: +5.5%
Analyst expectations: Higher
Forecast: Positive

Organic growth and the acquisition of two Florida health plans helped increase Medicare Advantage participation by 340,000 seniors through the first half of 2012, the company says. UnitedHealth acquired Medica HealthCare Plans and Preferred Care Partners; several primary care centers and two medical centers were also included in the deal.

Medicaid represents a growth market, with 275,000 beneficiaries added during the first six months of 2012. New and expanded contracts in Ohio, Kansas, Louisiana, Texas, and Washington contributed to the increase.

UnitedHealth officials made it clear that while they want to continue to expand their Medicaid business, they need to know that states are committed to running viable programs. Stephen Hemsley, the CEO of UnitedHealth Group, said the giant insurer will withdraw its products or reposition its programs if state commitments weaken.

WellPoint
Q2 Profit: -8.3%
Analyst expectations: Lower
Forecast: Negative

WellPoint continues to take steps to diversify its revenue stream.

The Amerigroup acquisition, announced in July, will add 19 states and 4.5 million members to its Medicaid footprint. It will also enhance WellPoint's ability to serve the dual eligibles market and capitalize on the emerging long-term services market.

The acquisition of 1-800 CONTACTS provides WellPoint with direct-to-consumer expertise as well as the opportunity to expand into a growing business segment. The contact lenses provider has more than three million active customers.