More on tying managed Medicare/Medicaid to exchange participation

Back in March, Bruce Japsen and Andrew Sprung noted that regardless of the financial woes many carriers are having on the individual market under the ACA, many of those same carriers are raking in big bucks in other divisions...particularly managed Medicare and Medicaid:

A snapshot of health insurers’ Medicaid windfall under the ACA could be seen in the earnings reports of Wellcare Health Plans (WCG) and Centene CNC +0.20% (CNC), which both beat Wall Street’s fourth quarter 2015 earnings expectations. These companies are an important measure of whether health insurers can find financial success providing Medicaid coverage to poor Americans under the health law President Obama signed six years ago even as the other key part of the legislation has growing pains.

Larger plans like Aetna AET +1.51% (AET), Anthem ANTM +1.31% (ANTM) and UnitedHealth Group UNH +1.08% (UNH) are also doing well in the Medicaid business, but their overall profit margins have been somewhat negatively impacted due to the private coverage on the exchanges.

Sprung used this data to argue that this should be the key to the much-ballyhooed "Public Option":

It seems that insurers are perfectly happy and prosperous competing in the markets where the government is the payer -- Medicaid managed care and Medicare Advantage. What if the ACA had offered all adults under age 65 who lacked access to employer-sponsored insurance a program something like the Basic Health Plans (BHPs) that the law allowed states to establish for people with incomes in the 139-200% FPL range?

...That is, what if instead of a single public option, all the options were public, in the sense that they were paid by the government as MCOs -- but administered by private insurers?

Last month I took this idea in a slightly different direction...

In this case, Sprung was putting things in terms of simply expanding managed Medicaid/Medicare across the board to become the de facto "public option"...but regardless, it seems to me that the framing here should really be more of a "loss leader" mindset. Yes, Aetna may lose $300 million on their individual market division this year...but overall they saw an increase in their net income, to over $780 million for the second quarter on top of $720 million in the first quarter. Assuming the 2nd half of the year is similar, that means they're looking at around $3 billion in net income for the year.

...which led to the L.A. Times' Michael Hiltzik taking it one step further:

Yet the authorities aren’t entirely powerless. It’s time for the government to push back and deliver the following message to insurers: If you want to reap the profits from participating in public health programs, you’ll have to participate in the Affordable Care Act too.

...The truth is, [Aetna is] well in the black. The company has projected losses of $300 million on its exchange business for 2016, but in the same conference call in which he dissed the ACA exchange business, Bertolini also announced a record $6.5 billion in government program premiums for the first quarter of 2016 alone, an increase of 13% over the same quarter a year ago.

...This all hints at the leverage the government might have against the insurers threatening to leave the ACA exchange market. What if it conditioned participation in Medicaid and Medicare managed care on a certain minimum participation in the private exchanges? Alternatively, it could reinvent and restore the public option, whether by offering Medicare to all Americans under 65 or sponsoring its own public plans.

Well, today Japsen has a follow-up story which adds quite a bit of support for tying participation in one program to participation in the other:

The expansion of Medicaid benefits, thanks largely to the Affordable Care Act, helped increase enrollment in private health plans by 3.4 million in the last year,according to a new report from consulting firm PwC.

...PwC said 73% of Medicaid beneficiaries — or 54.7 million of the 75.2 million Americans covered by the health benefit program for the poor – are enrolled in private plans that contract with the Medicaid program.

...But the growth in the last year wasn’t as fast as 2015 when health plans added more than 8 million Medicaid beneficiaries as more states agreed to expand such coverage under the ACA.

It’s been a boon for health insurance companies like including Aetna, Anthem, Centene, Molina and UnitedHealth Group, which are benefitting from the ACA’s expansion as well as an increasing number of states shifting management of Medicaid benefits to private companies.

OK, so that's managed Medicaid. What about the other Fat Government Contract shoe, Medicare Advantage? I don't write about Medicare much, but according to this story from last week...

Each day, 10,000 Americans turn 65. The baby boomers are reaching Medicare eligibility at a rapid rate, and many are choosing Medicare Advantage to help them manage their health.

Medicare Advantage is an alternative to original Medicare offered through private insurers, and in the last five years, enrollment has surged by nearly 50 percent across the country to approximately 18 million. Not even the "age wave" of baby boomers accounts for this explosive growth, as the Medicare-eligible population has increased 18 percent over the same period.

It's worth noting, as HHS spokesman Aaron Albright did just yesterday, that...

2010 Heritage prediction: "Enrollment in [MA] by 2017 is estimated to be cut roughly in 1/2, from a projected 14.8 m...to 7.4 million"

— Aaron Albright (@AaronKAlbright) September 22, 2016

Yup...the right-wing Heritage Foundation, which opposes the ACA (even though they helped write it 25 years ago) boldly predicted that Obamacare would cause a collapse in Medicare Advantage enrollment. Instead of dropping in half since then, it's increased by​ half. Oh, and while we're on the subject...

CMS estimates that average Medicare Advantage monthly premium will decrease by $1.19 (~4%) in 2017, from $32.59 on average in 2016 to $31.40

— Scott Gottlieb, MD (@ScottGottliebMD) September 22, 2016

The thing is, no one is saying that the carriers have to accept continuing to lose gobs of money on the exchanges; actuarially justified rate hikes to at least break even seem to be being approved by most states this year. This is mainly about at least participating in the exchanges.

Aetna and UnitedHealth Group want the upside of these fat managed Medicaid contracts, but don't want the bother of exchange participation. Perhaps it's time to require a spoonful of medicine to make that sugar go down. Just a thought.