The turmoil around the Affordable Care Act has created heartburn for health insurers. The industry is betting that a different government program will soothe its ills.
Big insurers have retreated from Obamacare's individual market, where fighting over the future of the health law has contributed to financial losses. They're focusing instead on Medicare Advantage, a politically popular program that's being embraced by a growing population of older Americans.
The market is dominated by two large players: No. 1 UnitedHealth Group Inc. has seen the number of people enrolled in its Medicare Advantage plans climb by 23% over the past year to 4.8 million, while No. 2 Humana has held steady at 3.3 million.
Both Obamacare and Medicare Advantage give consumers assistance to buy a health plan of their choosing. But under Medicare Advantage the government picks up much of the cost, ensuring a steady revenue stream for insurers. Plan premiums, which are largely paid by the government, average almost $1,000 a month.
Obamacare has been a much more mixed proposition. The relatively young law has come with an unending political headache, as Republicans have vowed to tear it out by the roots and President Donald Trump made its repeal a centerpiece of his presidential campaign. That opposition to the law culminated this month with Republican's failed repeal effort, yet the administration still has options to sabotage the law — and has threatened to do so.
Aging Americans
Medicare Advantage is the private version of the U.S. government's Medicare program for the elderly. It's also open to some disabled individuals. As the U.S. population ages, more retirees are opting for such plans over traditional Medicare. About a third of Medicare beneficiaries, or roughly 20 million people, were covered by the private plans as of June, according to the Centers for Medicare & Medicaid Services.
That makes Medicare Advantage one of the few areas of expansion in an otherwise stagnant industry. And its popularity could insulate it from Washington caprice: Seniors are a powerful voting bloc, so margin-threatening political changes are less likely than in businesses like Obamacare.
"It's both fundamentals and it's policies," said Ana Gupte, an analyst at Leerink Partners. "There's bipartisan support, but fundamentally also it's a large, growing and profitable market."
Medicare Advantage enrollees are insurers' favorite kind of customers — they stick around. Once they select a plan, they tend to stay enrolled for years. Obamacare users by contrast are often in and out of the market, and tend to shop every year for the lowest price. A UBS survey found that 12 percent of Medicare enrollees changed plans for 2017, compared with 39 percent in Affordable Care Act plans.
Gupte estimates that by 2020, half of the growing number of Medicare beneficiaries will be in Advantage plans — some 38 million people in all. UnitedHealth has a similar outlook.
"There's just a real strong overall value proposition with Medicare Advantage," Steven Nelson, the CEO of UnitedHealth's insurance operation, told investors on July 18. "We're seeing that not only just with the folks that we serve, but as we talk to policymakers, too, there's really strong support for it."
Humana's Medicare membership stagnated this year as the insurer pulled back from some markets and held benefits steady in an effort to improve profits. The effort succeeded in boosting earnings, and Humana said on Wednesday it plans to improve the appeal of its products for next year, boosting membership growth.
