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Health plan profits coming before growth in membership

The largest shareholder-owned insurers are expanding along with earnings, but plans aren't swinging their doors open for just anyone.

By Emily Berry — Posted Aug. 15, 2011

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For the first half of 2011, most of the seven largest publicly traded health plans were growing membership while also -- except for WellPoint -- growing profits.

The membership growth is a reversal of trends that saw the number of insured fall while profits continued to rise. The reversal has health plans encouraged, but they're not declaring that membership growth is their top goal.

"We would like to have both profit and growth," Aetna Chief Financial Officer Joseph Zubretsky told Credit Suisse investment analyst Charles Boorady on July 27. "But if you have to choose between one or the other, you take margin and profit and you sacrifice the growth line." He was speaking during Aetna's second-quarter earnings conference call.

Zubretsky's comments echoed a phrase uttered in 2008 by WellPoint CEO Angela Braly that ended up being quoted in congressional hearings on health system reform: "We will not sacrifice profitability for membership." She meant that the company wouldn't set the cost of coverage at a break-even or money-losing point just to gain members. But to critics, it also meant that the company was saying it priced some of the uninsured out of coverage.

WellPoint, as it turned out, was the only major publicly traded health plan that wasn't able to translate membership growth -- up 2% to 34.2 million in the second quarter or 2011 -- into higher profits. The company said earnings per share fell 2.9%, in part, because of increasing medical costs in its fastest-growing division, its senior business, which grew 8.1% to 1.4 million.

Some plans showed growth

Some plans, such as Aetna, UnitedHealth Group, Cigna and Coventry Health Care, recorded membership growth across all plan lines, including risk-based commercial and administration for self-insured employers, two lines that have taken a hit in recent years because of the recession and its subsequent stubbornly high unemployment.

However, other plans are seeing some businesses grow faster than others.

Humana's year-over-year 6.3% membership rise, to 11 million, came despite steep drops in commercial business, including a 17.5% decline in administrative services.

But growth in Medicare and Medicaid enrollment more than made up for those losses.

Health Net's commercial business was flat, and its Medicare business fell because of Centers for Medicare & Medicaid Services sanctions on marketing such plans. (The sanctions were lifted Aug. 1.) But Health Net added 86,000 Medicaid beneficiaries, mostly in California, a 10% increase that allowed the company to see enrollment growth -- barely -- up 5,000 to 2,941,000 from 2,936,000 in June 2010.

Health plans aren't all promising further enrollment growth in the near future. Aetna, for example, is warning investors that it will lose 500,000 administrative members if two major accounts expire in January 2012. The company also noted that its current enrollment growth got a major boost with the April acquisition of Prodigy Health, a third-party administrator. Otherwise, Aetna's enrollment would have fallen.

Aetna told analysts it will try to boost membership. One challenge in its commercial business is that employers are choosing plans based more and more on cost alone. If the deal isn't worth it, Aetna executives said, the insurer isn't going to sign with an employer just to gain members. "So you're going to see us err on the side of margin and profitability and grow if we can," Zubretsky said during Aetna's conference call.

Analysts said plans increasingly are likely to focus on niches and obvious growth opportunities, even if, for some, business is growing across all lines.

Payers are trying to position themselves for a market in which individual consumers are the target, not their employers, said Tom Heatherington, a Pittsburgh-based senior executive who consults with payers for Accenture.

"Although most midsize and large payers have a respectable individual business, by and large they are built for serving the employer as their customer," he said. "A lot of payers are figuring out how to function in a retail world."

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ADDITIONAL INFORMATION

Most profits up again

Most of the seven largest shareholder-owned health plans continued to benefit from low medical costs during the second quarter of 2011, resulting in double-digit growth in profits over the prior year. WellPoint was the exception, due to unexpectedly high medical costs for Medicare enrollees in Northern California. Except for earnings per share, all dollars are in millions.

Revenue Net income Earnings per share
Plan 2Q10 2Q11 (change) 2Q10 2Q11 (change) 2Q10 2Q11 (change)
Aetna $8,546 $8,344 (-2%) $491 $537 (9%) $1.14 $1.39 (22%)
Cigna $5,353 $5,509 (3%) $295 $408 (38%) $1.06 $1.50 (42%)
Coventry $2,868 $3,033 (6%) $1 $123 (12,200%) $0.01 $0.83 (8200%)
Health Net $3,437 $2,776 (-19%) $45 $58 (29%) $0.45 $0.63 (40%)
Humana $8,589 $9,284 (8%) $340 $460 (35%) $2.00 $2.71 (36%)
UnitedHealth Group $23,264 $25,234 (8%) $1,123 $1,267 (13%) $0.99 $1.16 (17%)
WellPoint $14,431 $15,101 (5%) $722 $702 (-3%) $1.71 $1.89 (11%)

Note: Coventry revenue figures are operating results only and therefore exclude investment and other income.

Source: Company filings with the Securities and Exchange Commission

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