Health Insurers Comment on New Public Exchanges

The rollout of the Patient Protection and Affordable Care Act continued with the introduction of the public individual insurance exchanges in October 2013. While problems with the exchange website,, have been well-publicized in the media, popular culture and the political punditry, little information has been disseminated on what the actual health insurance industry has to say.

How many people have enrolled and paid actual premiums? What are the early returns on the makeup of the exchange patient populations? Is this a newly insured population, or have people just re-enrolled in the exchanges after having their existing policies canceled that did not meet the PPACA's minimum coverage requirements?

To answer these and more questions, we reviewed the latest fourth-quarter earnings calls from the nation's largest commercial health insurance companies. These earnings calls have been some of the first public commentaries the industry has made regarding the exchanges. We have summarized the thoughts from the major health insurers below.

Aetna has actively participated in the public exchanges and successfully enrolled a large number of people into plans. In addition, it appears most people that have enrolled in Aetna plans have actually paid a premium as of the end of January. As Aetna CEO Mark Bertolini illustrated:

"Through the end of January, Aetna's exchange enrollment totals approximately 135,000 paid members and should continue to grow over the remainder of the open enrollment period."

"We have maintained that ratio of somewhere around 70 percent paid to enroll, although I will say that the folks who've enrolled before January were at about a little over 80 percent on paid versus enrolled, I think almost 90 percent now."

In addition, Mr. Bertolini indicated the demographic makeup of the Aetna enrollees were in line with expectations, which was slightly less healthy than average.

"As it relates to the risk in the pool, the demographics are about where we thought they would be, a little skewed to higher cost individuals."

Based on the earnings call, it seems that Aetna is pleased with the results of its initial enrollment period. One major concern the company has is in regard to the backend accounting of the exchange. Mr. Bertolini stated:

"The backend operational accounting for the public exchanges is still not up and running. We are doing that largely manually...but the whole add, change, delete functionality still needs to be built on the backend, and I think that's our next biggest concern as we move forward on managing the enrollment in the exchanges."

Cigna is not active in many of the state exchanges, but executives did provide insight about the makeup of its current enrollment. One interesting item to note was the vast majority of its enrollees were eligible to receive subsidies from the federal government to purchase the insurance. Cigna CEO David Cordani gave this description:

"So to remind you, we're in five states and a limited number of specific markets within those states. At a macro level, our experience to-date has been in line with a lot of the headlines that you've seen and we've seen with the lower all — overall additional adoption rates, therefore lower covered lives and a bit older base...the majority of our on-exchange business being in the silver plan. Think about a little variability in terms of the mix versus our assumption in terms of a little older mix relative to the population. Those who bought on-exchange, about 75 percent of them were subsidy-eligible."

Bruce Broussard, CEO of Humana, discussed how the government's decision to allow people to retain noncompliant plans with the minimum coverage requirements was affecting Humana's risk pool. In addition, like Cigna, most of its customers are receiving subsides, but unlike Cigna, its population has been of a younger demographic.

"We, and likely many of our competitors, are seeing much higher retention in our lower premium, non-ACA-compliant plans. This is due to the late-year announcement by HHS, which expanded participation in non-ACA-compliant plans to individuals across the country. We believe this change will result in an overall deterioration of the risk pool in ACA-compliant plans as more previously underwritten members have stayed with their current carriers rather than enter the exchanges."

"While still early, as we analyze the demographics of our exchange membership, we are seeing enrollees skewing a bit more to the younger side. This is likely the result of premium-subsidized younger enrollees choosing the lower deductibles offered with the higher metal tier plans. Approximately 82 percent of our new members are receiving subsidies. This could potentially mitigate some of the adverse impact associated with the risk pool deterioration from our higher membership in non-ACA-compliant plans."

UnitedHealth Group
UnitedHealth is taking a different route than many of its competitors and has decided not to participate in the public exchanges at this point in time. UnitedHealth CEO Stephen Hemsley explained his reasoning:

"As we enter 2014 with our company in a very positive position, we will continue to closely study the development of the individual public exchanges in 2014 and will be selective in our approaches for 2015."

"In terms of the public exchanges, I think you know that we've got a very modest footprint...Our participation will really be very much reliant on how this market matures. So at this stage, we're really not projecting our participation. We will be looking at sort of the — how robust the enrollment is, what the risks in those markets are and the consumers participating and, quite frankly, the cost structure is on those markets."

Out of all the major health insurance companies, WellPoint has been the most active player in the exchange marketplaces and has enrolled more people than any other company to date. As a result, WellPoint's experience might be the most telling. CEO Joseph Swedish described the company's recent experience:

"Just roughly 0.5 million applications for individual coverage has been received thus far, and that's actually as of last week. What we've observed is that the majority have been from new members to WellPoint, which I think is important. Secondly, over 80 percent have come through the public exchange with a balance remaining off-exchange. And then about 95 percent of the people have applied online. So put all that together, about two-thirds of the applicants were subsidy-eligible. And I think we really don't know how many members came from the uninsured. We only know that they're new to WellPoint."

"The average age of individual customers is closely tracking expectations. We anticipated that exchange enrollees would generally be older than our legacy individual customers."

One very interesting takeaway is that 80 percent of the new enrollees are new customers to WellPoint. While some of these people might be converting to WellPoint from other insurers, many are probably newly covered. This might indicate the PPACA is at least partially achieving its goal of insuring people that previously went uninsured.

Overall, WellPoint seemed very upbeat and positive about future expectations for the exchanges, with Mr. Swedish stating:

"We do feel good about what we've seen thus far on the exchanges and we feel good about our growth opportunities more broadly in a variety of areas as commented on in our statements a moment ago."

Most insurance companies, after problems with the initial rollout, are now having a more positive experience with the exchanges and are enrolling people into plans. The total numbers are still under initial projections, but companies expect enrollment to continue to increase leading up to the enrollment deadline of March 31. The average enrollee seems to be older and more costly than expected. In addition, the backend accounting function of the exchanges still seems to still have significant problems to overcome.

Source: Capita IQ

William Teague is a manager at VMG Health and based in the Nashville office. Mr. Teague specializes in providing valuation, transaction advisory and consulting services to the healthcare industry.

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