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What is PPACA World like? Anthem and Humana open up

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Executives at Anthem Inc. (NYSE:ANTM) and Humana Inc. (NYSE:HUM) gave some details about the effects of the Patient Protection and Affordable Care Act (PPACA) on the major medical market today as they went over first-quarter earnings.

Executives at Anthem a little more optimistic, but executives at both companies talked about the problems they have seen as well as hopes for the future.

See also: Aetna: What PPACA problem?

Anthem is reporting $865 million in net income for the latest quarter on $19 billion in revenue, up from $701 million in net income on $18 billion in revenue for the first quarter of 2014.

The company ended the quarter providing or administering coverage for 39 million people, up 4.3 percent from the total it recorded a year earlier. Individual commercial enrollment increased 2.4 percent, to 1.9 million. Local group enrollment rose 0.1 percent, to 15 million, and national commercial accounts enrollment rose 2.6 percent, to 5.4 million.

Humana is reporting $430 million in net income for the latest quarter on $14 billion in revenue, compared with $368 million in net income on $12 billion in revenue for the first quarter of 2014.

Humana ended the quarter administering or providing coverage for 14 million people, 8.2 percent more than it was covering a year earlier.

For a look at some of what company executives said about their earnings in a conference call with securities analysts, keep reading. 

Count on a blackboard 

1. Anthem saw solid growth in private exchange plan enrollment, but weaker growth than it expected in public exchange plan sales.

At Anthem, the private exchange enrollment plan increased to 280,000, up from 127,000 at the end of December and up from 100,000 a year earlier.

Many of the private exchange plan enrollees were Anthem plan enrollees before, but about 35 percent were new to Anthem, the company says.

The growth has not been substantial, “But, certainly, the pace has picked up,” Anthem president Joseph Swedish said. “We believe there’s probably a growing interest in private exchanges,” he added.

Public exchange qualified health plan (QHP) enrollment increased to 898,000. That’s up from 807,000 at the end of 2014, and up from about 600,000 a year earlier.

Wayne DeVeydt, Anthem’s chief financial officer, said the company’s QHPs attracted fewer new enrollees than it had hoped.

But “the existing business remained fairly sticky,” and retention levels were good, DeVeydt said.

Humana reports on three different forms of individual commercial enrollment: PPACA exchange enrollees; off-exchange enrollees with fully PPACA-compliant coverage; and off-exchange enrollees who still have older policies that do not fully comply with PPACA.

Enrollment in grandfathered and grandmothered policies fell 61 percent, to 184,800.

Enrollment in off-exchange PPACA-compliant policies increased 195 percent, to 213,300, and enrollment in exchange QHPs increased 227 percent, to 730,800.

HumanaOne individual enrollment growth “is way ahead of our projections,” according to Brian Kane, the company’s CFO.

At Humana, QHP sales and retention were both better than expected, Kane said.

See also: Blues to start private exchange for retirees


2. Anthem and Humana seem to be cautious about how they’ll do on individual medical business this year.

Swedish said he continues to believe the company can get underwriting profit margins of about 3 percent to 5 percent in the public exchange market.

Kane said he thinks HumanaOne will at least have break-even results this year, but that the company may need to get money from PPACA “three R’s” risk-management programs to achieve that goal.

See also: Feds post PPACA reinsurance program data

Nervous piggy bank

3. The three R’s are getting more attention.

Anthem was less detailed than competitors like Aetna and Humana about its three R’s program “payables” and “receivables” estimates. It did not give specific estimates in either its earnings release or the quarterly financial report it filed with the U.S. Securities and Exchange Commission.

Swedish said during the conference call that the company expects to pay some money into the risk-adjustment money, which uses cash from plans with relatively low-risk enrollees to help carriers with higher-risk enrollees, for both 2014 and 2015.

For the risk corridors program, which is supposed to use money from carriers with good underwriting results for 2014, 2015 and 2016 to help carriers with poor results for those years, Anthem has a “slight net payable position” for 2014 and, for now, has a neutral position for 2015, Swedish said.

PPACA also has a reinsurance program that’s supposed to use an assessment on most health plan enrollees to help PPACA-compliant pay the bills of enrollees with catastrophic claims.

“We continue to book reinsurance as appropriate,” Swedish said.

Humana says that, as of March 31, it was expecting to pay $2 million into the risk-adjustment program for 2015, and to get $42 million for 2014.

The company was expecting to get $19 million from the risk corridors program for 2015, and $91 million for 2014.

The company was hoping to collect $47 million in PPACA reinsurance for 2015, and $535 million for 2014.

See also: Regulators move to expand PPACA risk program reporting 


4. The companies have different ways of talking about the small-group market.

DeVeydt said the company believes the insurance market as a whole to stabilize, but not necessarily the small-group market.

“Our goal was to build the biggest catcher’s mitt we can build, so that whether a member is in Medicaid, a public exchange, or a small group, we’ll have the ability to pick them up,” DeVeydt said.

Kane said Humana wants to wind down its large-group business and focus more on the small-group market, where it feels as if it’s more of a national player.

Some competitors have won small-group share by offering attractive rates recently, but, over the long run, “we feel very confident about our ability to compete and win in the smaller-case market,” Kane said.

See also: managers post small-group payment guide

Confused man

5. Anthem is not impressed by the CO-OPs’ pricing decisions.

Anthem executives said the company has had trouble with sales partly because the new nonprofit, member-owned CO-OP plans have kept premiums at what Anthem believes to be unreasonably low levels, especially in markets such as Colorado and Kentucky.

“We believe we will continue to grow share as the market pricing backdrop stabilizes toward a more sustainable level, and CO-OPs and other entrants gain more experience,” Swedish said.

See also: Guaranty funds start paying CoOportunity claims

Frosted window

6. Georgia consumers are hard to figure out.

Humana executives said they were counting on the PPACA risk-adjustment program, which relies on a patient risk-scoring system similar to the system Medicare uses, to make offering high-value coverage to exchange enrollees a good business.

But one problem in Georgia, especially, is that the many of the enrollees who turned out to be heavy users of health care did not come in with documentable risk conditions.

The same strategy worked well in other states, executives said. 

See also: Actuary analyzes risky PPACA business


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