New revenue opportunities for commercial insurance carriers open up in the wake of ACA

Success in today’s health insurance industry may be elusive because of significant market trends driven by the Affordable Care Act, (ACA), according to William Lindsay III, president of the Lockton Employee Benefits Group. He notes that some segments of the industry can be expected to fare better than others, and success will vary by geographic region and market segment.

Contrary to popular opinion, Lindsey predicts that commercial insurance plans overall could do well under the ACA as a result of increased demand for coverage. While new regulations will reduce the margins realized by insurers from increased enrollment, there are opportunities to reclaim those margins through new populations. According to a recent report by Milliman, a healthcare consulting company,  high-risk or high-utilizer populations – including newborns, adult females, and the elderly – can actually be as profitable for plans as other beneficiaries.  An important factor to ensuring profitability is quickly identifying high-demand members and engaging them in intervention programs, notes the report.

The ACA employer mandate, which will apply to businesses in 2015 with 100 or more employees and those in 2016 with 50-99 employees, is intended to help spur development of employer-sponsored health plans – particularly among small to medium-sized businesses. In this climate, administrative-services-only providers will need to innovate because the approach used by large employers will not fit the small employer market expansion, says Lindsey.

Some employers may decide to eliminate their employee insurance plan contributions and instead pay the $2,000 to $3,000 per employee penalties imposed under the ACA, says Lindsey. A recent report by the financial industry research firm S&P Capital IQ, part of McGraw Hill Financial, suggests that by 2020, about 90% percent of American workers who receive health insurance through their employers will be shifted to government exchanges.

The U.S. Centers for Medicare and Medicaid Services’ Office of the Actuary projects managed care penetration in government health plans will grown substantially over the coming years as federal and state officials and consumers look to control costs. Federal law requiring better coordination of “dual eligibles” who qualify for both Medicare and Medicaid is expected to spur increased utilization of managed care in both programs.

“Medicare Advantage (MA) plans will continue to expand because of consumer demand for them,” says Lindsay.  However, he cautions that, beginning in 2015, sequestration cuts designed to curb the federal budget deficit will reduce government reimbursements to MA plans, thus threatening profitability. As a result, plans are variously expected to exit some markets, reduce plan offerings, reduce benefits, or narrow networks.  “The degree of (MA) insurer success will vary geographically because of rating rules,” says Lindsay.

READ: Is it time to exit Medicare Advantage?

Enrollment in managed Medicaid, already on the upswing, is likely to continue growing as a result of Medicaid expansion under the ACA and more states turning to managed care as a Medicaid cost control. However, managed Medicaid is generally a slim profit endeavor for the insurers who run the plans. A few plans are betting that more dual eligibles will help improve profit margins.

Lindsey projects that individual insurance sold through the public exchanges will expand with time and consumer acceptance of the new market will increase. He adds, however, that insurer profitability will likely vary depending on the demographics of who enrolls and the effectiveness of the insurer case management in dealing with pent up demand for care. All of those factors lead him to expect “great volatility in this market” in the coming years.