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Health insurers lower spending growth but worry about ACA

Three of seven major plans report higher net profits for the beginning of 2013 as they continue getting ready for the Affordable Care Act.

By — Posted June 3, 2013

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The less-than-expected health spending that has manifested itself in reduced projections in Medicare cost growth also is showing up in earnings reports from the largest publicly traded health plans.

Most plans reported that medical costs rose less than expected, helping three of the seven insurers to profit more during the first quarter of 2013. For example, although Aetna had a slight drop in net income, it reported that it did not spend $325 million it expected to. Humana's total of its unspent health budget was $193 million. Other plans did not give a specific number on what they expected to spend and didn't, but they did report savings.

Four plans recorded profit declines. Cigna's fall was not because of health costs but because of a one-time charge unrelated to its health business. UnitedHealth Group recorded a slight drop in earnings, because while it also spent less than expected, that total was $250 million less than the bonus it received in the first quarter of 2012 for not spending money put aside for health care. Meanwhile, Coventry Health also declined, though that was merely a paperwork formality — on May 7, a week after it reported earnings, it ceased to exist as an independent company when Aetna closed on its $7 billion acquisition.

Fear of 2014

However, health plans issued caution along with their numbers. They continued to make investments related to the full implementation of the Affordable Care Act in 2014, and warned of uncertainty regarding their financial situation until the effects of the ACA are known.

That warning was sounded even more loudly by insurers whose revenue and profits rely heavily on government-related plans. United, the largest seller of Medicare Advantage plans, and Humana, the second-largest, issued cautions that earnings could be hit by expected cuts in payments to those plans in 2014.

Meanwhile, health plans told investors that they are likely to see earnings dragged down as soon as the second quarter of 2013 because of budget sequestration that resulted in cuts to Medicare spending.

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ADDITIONAL INFORMATION

Health insurers' outlook jumbled as ACA approaches

Most of the largest publicly traded health plans reported lower-than-expected health costs, but that didn't always translate to improved earnings. The first quarter was mixed as health insurers continued to get ready for the Affordable Care Act in 2014 through acquisitions, changes in customer mix or other investments. All dollars are in millions.

RevenueNet income Earnings per share
Plan 1Q12 1Q13 (change) 1Q12 1Q13 (change) 1Q12 1Q13 (change)
Aetna $8,917$9,539 (7.0%)$511$490 (-4.1%)$1.43$1.48 (3.5%)
Cigna $6,754$8,183 (21.2%)$371$57 (-84.6%)$1.28$0.20 (-84.4%)
Coventry $3,692$3,520 (-4.7%)$171$135 (-21.1%)$1.20$1.00 (-16.7%)
Health Net $2,838$2,797 (-1.2%)-$27$50 (285.2%)-$0.32$0.62 (293.7%)
Humana $10,219$10,486 (2.6%)$248$473 (90.7%)$1.49$2.95 (98.0%)
UnitedHealth Group $27,282$30,340 (11.2%)$1,3881,192 (-14.1%)$1.31$1.16 (-11.5%)
WellPoint $15,150$17,546 (15.8%)$857$885 (3.3%)$2.53$2.89 (14.2%)

Source: Company filings with the Securities and Exchange Commission

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