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.
The 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: WLP) which operates under the well known Anthem Blue Cross Blue Shield brand has plan offerings 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 plan offerings target high density urban areas are priced lower than nearly all its competitors. Humana has specifically targeted low cost higher tier Gold and Platinum consumer which will likely skew towards older consumers.
Focus On The Long Term
While both Humana and Aetna have both spoken out regarding the makeup of the initial enrollment period. The primary concern is the possibility that too many sick and high cost consumers are entering the marketplace, forcing the new insurance pools to pay out more in costs than they are likely to take in from premiums. These issues may be a problem if the insurance pools continue to be unbalanced three to four years down the line, but should not be a major concern early. Clearly the sicker and more expensive patients have the most incentive to get covered, so it is not surprise that the initial is less representative of the overall population.
Insulating insurers from the full cost of these patients are a number of programs incorporated into the Affordable Care Act that are designed to handle such problems during the transition period. Among them are specific reinsurance programs, the development of risk corridors between insurance companies that will act to buffer against any insurer that ends up with higher cost consumers than would be expected. As some of the transition programs begin to expire at the end of the first three years, the individual mandate penalties will begin to act as a greater incentive for the healthier consumers to enter in the marketplace. The penalties for the uninsured will increase every year until the third year helping to balance out 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 eligible consumers from some of the potential premium hikes. With consumers partially shielded from the cost of premium increases, insurance companies will be able to raise the actual premiums on their plans to a level commensurate with costs while retaining their consumer base.