Reform Update: Insurers stand to benefit from shift toward Medicaid managed care

The movement toward Medicaid managed care fueled in part by the healthcare reform law presents significant opportunities for insurance companies to expand their reach in the programs.

More than three-quarters of Medicaid beneficiaries—44 million—will be enrolled in managed-care plans by 2016, according to a recent analysis by Avalere Health. That's a 38% increase over the number covered through managed-care plans in 2013.

WellPoint and Aetna are well-positioned to capitalize on the shift because of multibillion-dollar acquisitions in 2012. Regional players, such as Molina Healthcare, stand to benefit as well, said Matthew Eyles, Avalere's executive vice president.

The spike is driven in part by the expansion of Medicaid under the Patient Protection and Affordable Care Act. Roughly half the states have opted to allow residents who make up to 138% of the federal poverty threshold to be eligible for Medicaid. Nearly 4 million Americans have signed up for the government healthcare program since the state and federal exchanges began operating Oct. 1. It's unclear how many of them are newly eligible and even new to the program or simply re-enrolling. Just three of the 26 states expanding Medicaid don't utilize managed-care organizations.

The trend represents a rapid shift away from traditional fee-for-service programs. By 2016, just 23% of Medicaid enrollees will receive fee-for-service coverage, down from 34% last year, according to Avalere. There are now 38 states that utilize managed-care plans for at least part of their Medicaid program.

The fixed costs that come with private contracts are attractive to states, and states are hoping that coordinated-care delivery will deliver better health outcomes for enrollees, Eyles said. “When you think about fee for service, it's essentially unmanaged care.”

In California, roughly half of Medicaid enrollees were in fee-for-service programs as recently as two years ago, said Gerald Kominski, a health policy expert at the University of California at Los Angeles. But now all individuals have been shifted into managed-care plans. “Costs are the primary driver,” Kominski said.

UnitedHealthcare, the country's largest insurer, indicated in its fourth-quarter earnings report that the company added 205,000 Medicaid enrollees in 2013, bringing its total Medicaid enrollment to 4 million. The company expects Medicaid revenue to exceed $7 billion in 2015.

Joseph Swedish, CEO of WellPoint, told investors at the JPMorgan Healthcare Conference earlier this month that Medicaid enrollees now account for more than a quarter of the company's customers, and that he expects the firm's government business to continue growing. “The rollout of public exchanges and the expansion of Medicaid under the Affordable Care Act will accelerate enrollment growth opportunities in the years ahead,” Swedish said.

Moody's Investors Service downgraded the outlook for health insurance companies from stable to negative because of the ongoing uncertainty over implementation of the ACA. In particular, the firm cited evidence that enrollments in the state and federal exchanges are skewing older than anticipated and the numerous regulatory changes. “The past few months have seen new regulations and announcements that impose operational changes well after product and pricing decisions were finalized,” said Stephen Zaharuk, a Moody's senior vice president, in a statement.

The vast majority of individuals under the age of 35 will be better off financially if they forego health insurance and instead pay a financial penalty and cover their own medical costs, according to a new study by the conservative American Action Forum. The analysis relies on an estimate of average healthcare costs for young adults lacking insurance coverage, based on a national survey of health expenditures. In 2014—when the financial penalty for failing to acquire coverage will be just $95, or 1% of income, whichever is higher—86% of young people would be financially better off if they opted to go without coverage, according to the report. By 2016, when the fine for not having coverage will be at least $695, the analysis shows that 62% of young adults would still be financially better off foregoing coverage. “Whether young adults make the decision to purchase health insurance will depend on many factors, but the perverse economics of the ACA discourages young adults from joining the health insurance system,” the report concludes.

Texas issued new rules for organizations seeking to help individuals sign up for insurance coverage through the federal exchange. The state's “navigators” will be required to complete 20 hours of training and will have to undergo background checks. Originally, Texas proposed 40 hours of training and a $50 registration fee, but those requirements were scaled back after complaints that they were too onerous.

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