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Fewer Obamacare Choices Could Boost Health Stocks

By Bruce Japsen – Jan 21, 2016 at 3:03PM

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Health insurance companies trying to manage costs of customers buying products on public exchanges under the Affordable Care Act are offering more plans with limited choices to control costs and boost company profits.

Health maintenance organizations (HMOs), along other plans that restrict consumer choice, are enjoying a comeback, as the insurance industry looks to provide cost-effective plans to the uninsured under the Affordable Care Act while maintaining industry profits.

Health-insurance companies for this year pulled several products from the public marketplaces in part because they were expensive to operate, studies and company earnings reports have shown. The products pulled were generally preferred provider organizations (PPOs), which offer consumers the opportunity to go outside their health-plan networks. The additional choices make PPOs more costly for insurers.

UnitedHealth Group, Humana, Aetna, Anthem, and many Blue Cross and Blue Shield plans were among the biggest plays on public exchanges that pulled PPOs, the Robert Wood Johnson Foundation said in a report.

Insurers offer fewer PPOs, more HMOs to control costs
In what is now the third year of broader coverage under the health law on the exchanges, health plans offering narrower choices and networks that restrict where patients can go for care could mean higher profits for insurers. And that could translate into a boost in company stock prices.

"The products on the ACA marketplace now are quite different than they were last year, particularly in terms of access to out of network providers," Katherine Hempstead, who directs coverage issues for the Robert Wood Johnson Foundation, said in an interview.

A report from the foundation shows that "two-thirds of the insurance companies" that offered PPO plans in 2015 on the public exchanges either reduced or stopped offering such plans for this year. This trend could help the insurers better control their costs.

"There are far fewer PPO plans offered, and those that are on the market tend to be skimpier," Hempstead said. "The carriers have made adjustments to try to minimize their exposure to higher provider costs."

A report out this month from the Blue Cross and Blue Shield Association, which examined health products from all insurers in a county-by-county analysis across the country, said more than half of all plans offered on public exchanges are either HMOs or "exclusive provider organizations," which limit doctor and hospital choices to the EPO networks.

The market share on public exchanges of HMOs and EPOs rose to 52% this year, compared with 41% in 2015, the Blue Cross and Blue Shield Association said.

Moves could mean a "better outcome for carriers"
This trend could bode well in 2016 as health-insurance companies grapple with a population of patients that didn't have coverage before. Though health plans are gaining millions of new customers, managing these patients and their health needs has been tricky.

Says Hempstead: "Depending on the quantity and characteristics of enrollment, there may well be a better outcome for carriers."

The public-exchange business generally accounts for less than 10% of most health-insurance company revenue. But it's been a growing segment, and managing it better will translate into better profits and (hopefully) a boost in industry stock prices.

Bruce Japsen has no position in any stocks mentioned. The Motley Fool recommends Anthem and UnitedHealth Group. 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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