Public Health Insurance Companies On The Obamacare Exchanges

Public Health Insurance Companies On The Obamacare Exchanges

Feb 14, 2014 at 1:45PM

The CBO has projected that by 2016 an additional 22 million people will find some form of health insurance coverage through the Affordable Care Act's Health Insurance Marketplaces. In each state multiple insurers are competing for the opportunity to capture the new consumer base that has opened up through Obamacare's tax subsidies. At full enrollment the Affordable Care Act could bring the private health insurance industry over 90 billion dollars in annual premiums. With the marketplace enrollment numbers already topping 2 million, a number of publicly traded health insurance companies are already benefiting from the exchanges.

Companies to watch
Aetna
(NYSE:AET)recently acquired Coventry Healthcare and in many states is offering insurance on the marketplace through Coventry instead. While the company has chosen to pull out of a number of the state run exchanges including a well publicized departure from California's individual marketplace, it is poised to compete heavily on the federal marketplace. Aetna's combined plan offerings cover 775 counties in 15 states and include the most lucrative markets in Texas, Florida and Arizona.

WellPoint (NYSE:ANTM)which operates under the well known Anthem Blue Cross Blue Shield brand has plan offerings in 612 counties in 12 states on the Federal Marketplace. Anthem also has a heavy presence in many of the state exchanges especially in the state of California which is by far the largest market for the exchanges.

Humana (NYSE:HUM)has a smaller national presence, but in the areas the company has chosen to participate, the company will likely capture a large proportion of new consumers. Humana's plan offerings  target high density urban areas and are priced lower than nearly all its competitors. 

Focus on the long term
Both Humana and Aetna have both spoken out regarding concerns with the makeup of the initial enrollment. The primary issue is the possibility that too many sick and expensive consumers are joining the new insurance pools with companies likely to pay out more in costs than they are taking in from premiums. While this may be an issue if it continues three to four years down the line, it is not a big problem early on. For these companies the early news when it comes to Obamacare is all likely to be bad. Clearly sicker and high cost consumers have the most incentive to get covered. This however doesn't mean that the ACA will be bad for insurance companies in the long run. 

First, a number a programs built into the ACA are designed to alleviate problems during this transition period. These programs will help compensate insurers for the adverse selection problems that will drive sicker and more costly patients to enroll first. These transition programs should help minimize the losses incurred by the insurance companies. As the mandate penalties kick in and rise over the next three years, more healthy and net profitable consumers are expected to join the insurance pools. 

Even if the insurance companies initially lose money on the insurance marketplaces, this is outweighed by the long term profitability these consumers may present. When it comes to health insurance, policyholders who have become familiar with provider networks are very reluctant to switch companies even in the face of premium hikes. In addition the federal subsidies that help consumers pay for their plans are pegged to the price of health insurance, shielding eligibile conusmers from some of the potential premium hikes. For the insurance companies, even if the acquisition of consumers results in a short term loss, the high retention in the market and the help of federal subsidies will prove advantageous in the long term.

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This article originally appeared on ValuePenguin.com.

Jonathan Wu and Value Penguin have no position in any stocks mentioned. The Motley Fool recommends WellPoint. The Motley Fool owns shares of WellPoint. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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