Reform Update: Publicly traded insurers take bigger role in Obamacare's second year

Publicly traded insurers largely took a cautious approach to the federal and state health insurance exchanges in their first year of operation. That looked like a wise choice given that HealthCare.gov and many state-based exchanges were plagued by technological problems during the opening weeks of business last year.

But ultimately 7.3 million individuals signed up for coverage, according to HHS, surpassing expectations. That number is expected to swell to 13 million this year, according to the Congressional Budget Office.

That expanding marketplace is enticing publicly traded insurers to take a more aggressive approach for the next open-enrollment period. UnitedHealth Group is making the biggest bet on the public exchanges. The Minnetonka-Minn.-based insurer will participate in two dozen exchanges, more than double its footprint in 2014.

But other companies also are expanding their exchange presence. Cigna will sell plans through the exchanges in eight states, with Missouri, Maryland and Georgia added to its territory for 2015. Aetna will compete in 18 states, with Georgia as a new market. And Humana will compete in 15 states, one more than in 2014.

With the country's largest insurers not competing vigorously, Blue Cross and Blue Shield plans dominated the marketplaces in many states in the first open enrollment. “The Blues emerged as the key players,” said Joseph Marinucci, an analyst with Standard & Poor's. “The publicly traded players, they clearly took more of a wait-and-see approach.”

WellPoint was the major exception. The Indianapolis-based insurer competed in the exchanges in all 14 states where it has operations and enrolled more than 700,000 individuals in coverage. WellPoint plans to compete in all those states again when the next open-enrollment period begins Nov. 15.

Rob Ruiz-Moss, WellPoint's vice president for exchange strategy and execution, said the company's experience in the first year largely tracked along expected lines in terms of the age and health status of the customers it enrolled. “There's still a lot of young business on the books, but at this point we don't see any large-scale concerns,” Moss said. “We don't see any red flags.”

The growth in exchange activity by publicly traded insurers reflects a broader growth in competition on the government-run marketplaces. Last week, HHS announced that there will be 25% more insurers competing for customers in the 44 states for which complete data was available. In 36 of those states, there will be at least one new insurer in the marketplace. Only one state, California, saw a reduction in health plans, and the state's exchange will still have 10 competing insurers. Overall, 77 insurers entered new markets, while just 14 exited.

HHS Secretary Sylvia Mathews Burwell hailed the increased competitiveness as evidence that the exchanges are viable marketplaces in comments this week.

But Mark Pauly, a healthcare economist at the University of Pennsylvania, points out that companies are taking very little financial risk because of protections built into the law to shield them from significant losses. “I don't know if you want to call it corporate welfare, but there's definitely a corporate safety net,” Pauly said.

Marinucci noted that the large publicly traded insurers could afford to take a cautious approach in the first year because they have diverse books of business that typically aren't very reliant on the individual market. That wasn't an option, he points out, for thinly capitalized, startup insurers such as the consumer-governed co-op plans.

Marinucci also points out that there was still very little data available to insurers about the health and cost of exchange customers when setting prices for 2015, but that the uncertainties will diminish with each year of operations. “There's more of a balance between risk and opportunity,” he said. “We still have concerns about levels of morbidity and pricing relative to morbidity.”

Not all publicly traded insurers are increasing their exchange presence. Health Net competed in three markets, Arizona, California and Oregon, during the first open-enrollment period. It captured roughly 20% of the individual market in California, compared to just 3% prior to the establishment of the exchange. And in Arizona, it went from practically no footprint in the individual market to capturing roughly 30% of those customers through June of this year.

But Oregon was a different story. Health Net attracted just 3% of exchange customers during the first open-enrollment period. The Cover Oregon exchange website was arguably the most dysfunctional in the country. The state is shifting to HealthCare.gov for the sign-up period that begins Nov. 15.

But Health Net won't be making the transition. Jen Moore, Health Net's vice president for individual markets and exchanges, said the company decided it wasn't worth the headache to switch to the new system given the paucity of enrollments in Oregon. “It's all about opportunity cost,” Moore said.

That will allow Health Net to concentrate on California and Arizona, where it has already made significant inroads. Moore said they plan to make five contacts with every customer who signed up during the first year about renewing their plans. The company also plans to expand its outreach to Hispanic residents, with Spanish-language radio, billboards and grocery story hand sanitizers among the platforms.

“We're very pleased with the outcome for year one,” Moore said. “We knew it was going to be a pretty bumpy implementation.”

If Democrat Mike Michaud prevails in Maine's gubernatorial contest, the state is almost certain to move forward with expanding Medicaid to individuals with incomes up to 138% of the federal poverty threshold. In several other states—Florida, Georgia, Kansas and Wisconsin—Democrats who support Medicaid expansion have a shot at prevailing, but would face opposition from state legislatures. In two states that have already expanded Medicaid, Arizona and Arkansas, competitive Republican gubernatorial candidates have been unclear about whether they would seek to roll back the expansion. Both Governing magazine and Families USA broke down the dynamics at play in these states in recent articles.

A group of Republican senators are pushing for another Obamacare fight in the lame-duck session after Election Day, Roll Call reports. At issue is funding for the risk corridors program that protects insurers from major losses in the exchanges if they attract a disproportionately sick, costly population. The Government Accountability Office recently issued an opinion that HHS needs an explicit appropriation to fund the program. But the federal agency believes it has authority to move forward with payments under the ACA. The group of 14 Republican senators, led by potential presidential aspirant Marco Rubio of Florida, wrote a letter to House Speaker John Boehner asking him to take action to prohibit the Obama administration from spending money on the program.

Follow Paul Demko on Twitter: @MHpdemko