The Medicaid market can be complicated and terrifying, but it has its charms.
Hema Singh and other analysts at Standard & Poor’s Ratings Services write about the charms in an article about the effects of the Patient Protection and Affordable Care Act (PPACA) Medicaid expansion program.
Getting and keeping state Medicaid contracts can be difficult, but “the expansion of Medicaid in 29 states and the District of Columbia is generating significant revenues for health insurers,” the analysts write.
These days, during quarterly earnings calls, executives at many publicly traded health insurers spend more time talking about PPACA exchange plans and about Medicaid program bids than about traditional commercial plan sales.
Singh and her colleagues write about the potential Medicaid program challenges as well as about the potential rewards. The challenges include state budget pressure, political battles, and ferocious bidding processes that typically hold annual reimbursement rate increases down to 1 percent to 3 percent, the analysts say.
Because of the lingering effects of the Great Recession on state health care program budgets, “Margins at these insurers typically will remain between 1 percent and 3 percent,” the analysts say. “In addition, some Blue Cross/Blue Shield insurers that are new to Medicaid may be particularly vulnerable to losses during the startup of their Medicaid business, as they ramp up their own capabilities or find partners with Medicaid expertise.”
But many insurers do seem to be more interested in building Medicaid capabilities, or finding partners with Medicaid expertise, than in schmoozing agents and brokers.
Medicaid accounted for 91 percent of 2014 revenue at Centene Corp. (NYSE:CNC), a “Medicaid managed care company,” but it also accounted for 24 percent of 2014 revenue at Anthem Inc. (NYSE:ANTM), 20 percent at UnitedHealth Group Inc. (NYSE:UNH), and 11 percent at Aetna Inc. (NYSE:AET).
For a look at the reasons why insurers may not be that into producers, and might be passionate about Medicaid and Children’s Health Insurance Program (CHIP) plan procurement bidding documents, read on.
1. The contracts can be huge.
States often use complicated, drawn-out, appeal-muddled request for proposal (RFP) systems to sign Medicaid plan managers, but winning a contract can get an insurer hundreds of thousands of new plan enrollees, or even more, and a contract may last three to seven years.
The length of a contract and the pressure to submit a low bid can lead to losses.
“Some Medicaid insurers in this position have petitioned a state for more revenue or abandoned operations there entirely,” the S&P analysts write.
But some states provide some risk-adjustment relief, and an insurer that can predict and manage health care costs effectively can earn a profit, the analysts say.
See also: Indiana wins approval to expand Medicaid