(Bloomberg) — The Patient Protection and Affordable Care Act (PPACA) has been great business for U.S. health insurers. Just not everywhere.
Georgia is Humana Inc.’s second-biggest market for insurance policies sold under the health law, and the home of what may be its biggest misstep. The company is now attempting a turnaround as it tries to make its strategy of selling coverage directly to consumers a success.
If it can’t, it will quit the state. “We have to make a return,” Humana Chief Executive Officer Bruce Broussard said in an interview. “We can’t have one business being subsidized by another business.”
Humana’s Georgia struggle shows the challenges health insurers face entering unfamiliar markets. President Barack Obama’s 2010 health-care law will provide an estimated $19 billion in subsidies and helped about 12 million people buy coverage for this year. As insurers have raced to capture those customers, some are doing well, and others have overreached.
Humana (NYSE:HUM), which touts its skills at selling health insurance directly to individuals, ran into trouble in Georgia after charging too little for plans it sold on the state’s new marketplace. Customers came running.
Unfortunately, more of them were sicker than Humana expected. Flooded with patients, Humana let them see doctors who aren’t in its networks. That’s expensive — health insurers make deals with doctors and hospitals to add them to their networks, negotiating lower prices in return for business.
The out-of-network generosity cost the insurer. Humana’s stock declined 7.2 percent on April 29 after the insurer reported first-quarter profit that fell short of estimates amid increased spending on medical claims. It blamed some of its troubles on Georgia. Despite that, Humana’s stock is up 24 percent this year.
Back in network
Months later, it’s ending the out-of-network flexibility, Broussard said.
“We didn’t have the capacity, to be honest with you, to be able to bring them back in,” he said. “Starting in July we will begin to start not allowing” the out-of-network visits.