Medicare and Medicaid coverage have become increasingly popular due to the growths in the aging population and potential ACA-related Medicaid expansions. Yes, those patient groups also carry a deal of risk — but it’s government-sponsored risk that also helps with general diversification.
Last year’s wave of acquisitions aimed to increase presence in these areas. UnitedHealth bought XLHealth, provider of Medicare Advantage plans and dual-eligible coverage. WellPoint, Inc. (NYSE:WLP) bought Amerigroup for its strong Medicaid business. And the list goes on.
But the road forward for these programs is unproven, since the ACA remains a work in progress. And the companies differ in how exposed they’ve become to these specific risks. UnitedHealth’s Community & State segment only accounted for about 15% of overall revenues in fiscal 2012. Over at Humana Inc (NYSE:HUM), retail Medicare Advantage customers accounted for more than 53% of overall revenues.
Foolish final thoughts
The ACA changes will push health insurance further away from true insurance products in how risk can balance out with denials or premium hikes. But the government isn’t leaving companies high and dry, since the ACA also includes several provisions to help ease the incoming risk burden. Notably, the individual mandate and health insurance exchanges may drive more healthy individuals into policies if they don’t want to pay the opt-out fees.
Companies still need to get smarter about how they manage risks within the new framework. Diversification and sheer size, like we see with UnitedHealth, has the best shot of staying on top. But Humana Inc (NYSE:HUM) and other smaller, risk-laden companies might have troubled waters ahead.
The article Obamacare Is Changing Health Insurance Forever originally appeared on Fool.com and is written by Brandy Betz.
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