Health Insurance Industry on the Growth Path

Strategic Insights -

The health insurance industry has finally found its footing after a choppy ride, with the Affordable Care Act (ACA) proving to be beneficial to industry players. Despite initial criticism, insurers have witnessed significant gains in membership enrollments, leading to increased revenues from the individual and public exchange segments. The trend of share price movement of the biggest four health insurance companies also indicates the market's optimism about the ultimate effects of the law on the health insurers. Aetna, UnitedHealth Group, Cigna, and Humana have seen significant gains in their share prices, outperforming the S&P 500 index by 245%, 293%, 282%, and 294%, respectively.

Key Takeaways:

  • The Affordable Care Act (ACA) has driven consolidation in the health insurance industry, with larger players looking to merge and acquire smaller ones to increase their market share and negotiate better with hospitals.
  • The nation's uninsured rate has plummeted since the ACA took effect, from 47 million to 9.2% as of the second quarter of 2015, indicating a significant increase in insurance coverage provided by health insurers.
  • Health insurers are reassessing their business model from the perspective of product, pricing, risk management, distribution, and claims to fraud management for a realistic pace of growth.
  • Public Exchanges are expected to experience the highest membership growth via Individual/Public Exchanges, with most big players stating that they will continue to fetch revenue growth.
  • Medicaid Expansion has created a new opportunity for large participants, with UnitedHealth and Anthem being among the largest Medicaid providers.
  • The population of Medicare beneficiaries is expected to grow by 36% by the end of this decade, driven by the vast aging baby boomer population, presenting significant growth opportunities for Medicare Advantage plans.
  • American health insurers are looking to foreign markets, particularly Asia and Europe, for sustained growth and profitability due to attractive opportunities and less competitive landscapes.
  • Health insurers are trying to clinch accountable care payment contracts following the 2010 healthcare reform law's inclusion of Accountable Care Organization (ACO) tests under Medicare.
  • Insurers are branching out into non-traditional areas, acquiring companies that fall outside the realm of traditional health insurance yet complement it, such as analytics services, health IT, and pharmacy benefit management.
  • The industry is primed for revolutionary changes, with value-based provider payment models and retail marketplaces continuing to grow, resulting in a consumer-empowered health care system.

Statistics:

  • The uninsured rate has dropped from 47 million to 9.2% as of the second quarter of 2015 (source: NHIS/CDC study).
  • The S&P 500 index has increased by 73% since the passing of the ACA (source: Zacks.com).
  • Aetna, UnitedHealth Group, Cigna, and Humana have seen significant gains in their share prices, outperforming the S&P 500 index by 245%, 293%, 282%, and 294%, respectively (source: Zacks.com).
  • The population of Medicare beneficiaries is expected to grow by 36% by the end of this decade (source: U.S. Census data).
  • Between 2015 and 2019, the Individual/Public Exchange segment is expected to experience the highest membership growth via Public Exchanges (source: Zacks.com).

Sources:

  • Zacks.com (Oct 20, 2015)
  • NHIS/CDC study (2015)
  • U.S. Census data
  • Zacks Investment Research (C) 2015