Humana: Obamacare Exchange Enrollment 'More Adverse Than Previously Expected'

Jan 10 2014, 4:12pm CST | by

Humana: Obamacare Exchange Enrollment 'More Adverse Than Previously Expected'

On January 9, health insurance bellwether Humana formally announced something that industry observers have long suspected: that healthy and young people don’t think Obamacare’s insurance plans are a good deal for them. Those people, Humana indicated, are choosing to stay on their previous health plans, where allowed, instead of participating in the Obamacare exchanges. As a result, Humana “now expects the risk mix of members enrolling through the health insurance exchanges to be more adverse than previously expected.” The question now is: will taxpayers have to pick up the bill for the Obama administration’s last-minute changes to the law?

Humana reaffirms prior 2014 earnings guidance

Humana’s answer to this question, thus far, appears to be: not yet. The insurer “is evaluating the effects” of President Obama’s chaotic decision to allow some insurers in some states to continue old plans, and exempt some Americans from the individual mandate. But for now, Humana is “reaffirming its previous 2014 earnings guidance of $7.25 to $7.75 per diluted common share.” But that’s because Humana’s losses on the exchanges are being offset by good performance in the company’s other businesses.

Private insurers have diverged in their approach to the Obamacare exchanges. The largely non-profit Blue Cross Blue Shield plans have involved themselves with gusto, hoping that they can make up for any near-term losses by gaining a first-mover advantage and enrolling the initial crop of participants. The for-profit insurers have been more careful, participating only in states where they feel they can deliver a cost-efficient product.

Humana has been one of the for-profit players, along with Aetna, that has been most gung-ho about participating in the exchanges. “The exchanges probably are a good thing,” Humana CEO Bruce Broussard told me in an October interview. “It’s expanding coverage for people, and we think that in the long run it will be the right thing to do. In the short run, it’s got some bumps, and the industry and the government expected that. But we are focused on fixing those bumps, and to work with the government to make it both a good experience [while] driving down health care costs and improving the quality.”

But Broussard was more cautious, even back then, about the likelihood of healthier people signing up. “The verdict’s out on that, to be honest with you…the federal government and the states are trying to stimulate more and more people to sign up. I think as the penalty increases for not having insurance, probably you will see more people sign up. But in the short run, it could be [sicker] people that just need coverage.”

It doesn’t appear, thus far, that Broussard and his pro-exchange colleagues have been rewarded for their good faith. At every turn, in an effort to mitigate short-term political fallout, the Obama administration has enacted major changes to the way the exchanges are supposed to work. As a result, the prices Humana and the others set for the exchange-based plans will be low, relative to the sickly, high-spending population that will enroll in them.

Very interesting news on Medicare Advantage

In its 8-K filing with the Securities and Exchange Commission, Humana also bore some good news. Despite Obamacare’s substantial cuts to the Medicare Advantage program, seniors are continuing to choose that program over the traditional single-payer version of Medicare. “Based upon the results of the Medicare Annual Election Period, the Company expects gross sales and terminations for individual Medicare Advantage plans for 2014 to be meaningfully better than previously projected resulting in higher anticipated net Medicare Advantage membership gains for 2014,” Humana said.

This is an extremely interesting development, one that comports with what other private insurers are seeing. Richard Foster, the recently-retired chief actuary of the Medicare program, had projected that Obamacare’s cuts to Medicare Advantage would force half of the program’s enrollees back into the 1965-vintage single-payer program. That, so far, does not appear to be happening.

While this is bad news for GOP partisans hoping to capitalize on Obamacare’s problems, it’s actually good news for advocates of market-oriented reform. If private insurers can now offer a more popular and more attractive benefit to seniors, for the same price that the government can, those who have advocated a transition from government-run insurance to private-sector insurance will gain a potent new argument.

We’re not out of the woods yet on this topic. Further cuts to Medicare Advantage in 2015 and beyond may yet discourage seniors from sticking with the program. But this is one of the several areas where good news for Obamacare is good news for pro-market reformers.

Will insurers require a bailout?

But before we get too cheery, let’s return to an important topic: whether insurers will need a bailout to protect themselves from the Obama administration’s various mishaps.

Some Republicans and conservative activists are pushing a “no bailout for insurers” bill that would prevent carriers from being compensated for losses they incur for participating in the exchange. This was triggered by increasing awareness that Obamacare contains a measure known as the “risk corridor” provision that protects insurers from 80 percent of excess costs if sicker-than-anticipated people sign up for coverage. The risk corridor program lasts for the first three years of the exchanges.

Momentum for the “no bailout” bill was spurred by Washington Post columnist Charles Krauthammer, who urged such a bill as the “first order of business for the returning Congress.” It’s a political strategy aimed at taking advantage of the fact that Americans hate industry bailouts.

But there’s a big difference between a taxpayer-funded bailout for a company that has been incompetent—like General Motors—and a bailout for companies that are losing money because the government is forcing them to, as with Obamacare.

None of this matters to the anti-Obamacare hard-core, who actively want to undermine the insurers who have participated in the exchanges. If you believe that Obamacare is an existential threat to America, then of course you want the law to fail by any and all means necessary. But most Americans have a different view. While they’re skeptical that Obamacare will live up to its grandiose promises, they want the health care system to work. Republicans who want to appeal to the whole of the country should pay attention.

*    *    *

Avik’s new book, How Medicaid Fails the Poor, is now available in paperback, Kindle, and iBooks versions.

Follow @Avik on Twitter, Google+, and YouTube, and The Apothecary on Facebook.

Or, sign up to receive a weekly e-mail digest of articles from The Apothecary.

*    *    *

INVESTORS’ NOTE: The biggest publicly-traded players in Obamacare’s health insurance exchanges are Aetna (NYSE:AET), Humana (NYSE:HUM), Cigna (NYSE:CI), Molina (NYSE:MOH), WellPoint (NYSE:WLP), and Centene (NYSE:CNC), in order of the number of uninsured exchange-eligible Americans for whom their plans are available.

Source: Forbes Auto

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Ford's Mustang Made It To The Top Of Empire State Building
Disclosure: I own F shares Fifty years after Ford’s (NYSE:F) first Mustang model made its debut at the 1964 World’s Fair in New York City, the new 2015 model has made it to the top of the Empire State Building. No, it...
 
 
Tesla To Talk With Sinopec About Charging Network In China, Report Says
Elon Musk, Tesla’s Chief Executive, looks to be heading to China later this month to discuss with Sinopec the idea of constructing facilities to charge its growing fleet of electric cars, according to a report in the...
 
 
Prepaid Cards To Hit $200 Billion In Merchant Sales in 2012
Prepaid cards have entered the mainstream, says Madeline Aufseeser, a senior analyst at Aité Group, a financial technology consultancy, and merchants are promoting them enthusiastically. In 2014, retail purchases made...
 
 
Roads Versus Rail: The Big Battle Over Public Transportation
Roads Versus Rail: The Big Battle Over Public Transportation
EDITOR’S NOTE: Forbes has just published Curbing Cars: America’s Independence From The Auto Industry, an eBook investigating why a growing number of Americans are giving up their cars. Written by Forbes contributor and...
 
 
 

Latest from the Network

'Mad Men' Ad Scan: An Legendary Creative Director Dissects Freddy Rumsen's Accutron Spot
For all its existential trappings, Mad Men is ultimately a workplace drama about mid-level ad agency.  And that’s the one thing that Don Draper and Friends are good: creating compelling spots To see how this year’s ads...
Read more on Business Balla
 
Four Bearish Plays For An Overpriced Market
What do you do if the market is 43% overpriced? (The 43% is explained here.) Go to cash. James Montier, bearish market strategist at money manager GMO, is only 30% invested with his own savings. That’s a bit drastic,...
Read more on Business Balla
 
Legislator Wants To Stop School Choice From Creating Pseudo All-Star Teams
New Jersey’s Interdistrict Public School Choice program allows students to transfer to other, state-approved districts to get themselves, presumably, a better education, as well as take advantage of “specialized and...
Read more on Business Balla
 
United Center Leads Dual Sport Venues With Highest Average Price for Tickets To See Blackhawks and Bulls
As the NHL and NBA playoffs are getting ready to start, arenas all over North America will be preparing to host the extra games. While these venues will enjoy the extra revenue from postseason games, three venues will...
Read more on Business Balla
 
What 'Heaven Is For Real' Has In Common With Horror Movies
The other day, a friend of mine asked why Hollywood makes so many horror movies when most of the people he knows have no desire to see them. The answer is that there is a group of people who will go see horror movies,...
Read more on Business Balla
 
Blizzard's 'Hearthstone' Arrives On iPad Worldwide
After a successful test in a few regions, Blizzard has now released its battle card game, Hearthstone, on Apple's  iPad worldwide. The game has made a splash on PC since an exceptionally popular closed and open beta,...
Read more on Business Balla
 
3 Ways Microsoft Is Rethinking Its Energy Supply
I’m mostly kidding, but maybe we should go back to calling cloud services by one of its earlier names, utility computing. After all, this whole evolution is inspiring high-tech vendors from Apple to eBay to Google to...
Read more on Business Balla
 
Why CIA Director Brennan Visited Kiev: In Ukraine The Covert War Has Begun
Ukraine is on the brink of civil war, Vladimir Putin has said, and he should know because the country is already in the midst of a covert intelligence war. Over the weekend, CIA director John Brennan travelled to Kiev,...
Read more on Business Balla
 
Local Economic Forecasts From a Global/National Perspective
Small business owners attend economic forecast presentations presented by a bank or chamber of commerce. What the business owner always wants to know is what is going to happen in the local economy, but a lot of the...
Read more on Business Balla
 
The Best Cities For Raising A Family
America's Best Cities for Raising a Family Raleigh, N.C., has built a solid economy around financial services, software and energy, a major retail shipping operation and its renowned Research Triangle. The metro area...
Read more on Business Balla
 
 
Auto Balla Sexy Balla Sport Balla TV Balla Politics Balla Movie Balla Apple Balla Business Balla Ad Balla Celebrity Balla