While the courts and the Congress continue to fight over the health-care reform law, known as the Affordable Care Act or ACA, insurers are looking forward to as many as 16 million new customers as a result of the ACA’s provision that allows states to contract with providers to run managed-care Medicaid programs. The opportunity for insurers could total $40 billion in new business, as we have already noted.
Large insurers like Wellpoint Inc. (NYSE: WLP), UnitedHealth Group Inc. (NYSE: UNH), Aetna Inc. (NYSE: AET), and Cigna Corp. (NYSE: CI) are in hot pursuit of opportunities to offer management services to state-run Medicaid programs, in the belief that a slew of new customers will more than offset any losses attributable to the ACA. Politicians continue to squabble over ideology, with the conservatives seeking to kill the ACA and liberals wanting to maintain it.
The insurance companies know what they want. Wellpoint posted EPS of $6.94 in 2010 and has reiterated its guidance for EPS of “at least” $6.30 in 2011. The company has also declared a quarterly dividend of $0.25, beginning with the current quarter, and has announced that it will buy back some $1.6 billion in shares by the end of 2011.
Wellpoint is the largest provider in the managed-Medicaid market, and by virtue of its size will be a formidable competitor to the other leading managed-Medicaid providers. Other leading managed-Medicaid providers include Centene Corp. (NYSE: CNC), Amerigroup Corp. (NYSE: AGP), WellCare Health Plans, Inc. (NYSE: WCG), and Molina Heathcare Inc. (NYSE: MOH). None of these has a market cap of more than about $2.5 billion, about a tenth the size of Wellpoint.
Of the large providers, Aetna has forecast 2011 operating profit of $3.70-$3.80/share, compared with $3.68 in 2010. The company, like Wellpoint, UnitedHealth, and Cigna, experienced lower health care use in 2010. That is surely the result of higher premiums, higher deductibles, and fewer visits to the doctor from those insured.
Six states already have a requirement that Medicaid patients enroll in managed care plans, and another ten have similar programs under consideration. Under the managed care plans, Medicaid payments will go to the plan administrators, not directly to doctors, hospitals, and nursing homes as is currently the case in most states. In a managed care system, the states pay a fixed amount to the insurer for each Medicaid patient. Then its up to the insurer to manage costs.
The argument against the managed care plans is that because the goal is to keep costs down, patients have difficulty getting the care they need.
The vast new market open to insurers by way of managed Medicaid plans is likely to be the driver of insurers’ profits through 2014. Higher premiums, higher deductibles, and lower health care use will also contribute to insurers growth, at least for the next year or two. But if the ACA is not repealed or starved financially, premiums should start to moderate, deductibles should get smaller, and patients should begin consulting their doctors again, without driving government costs through the roof.