An analysis of 2015 financial information shows the state’s expansion of Medicaid under Obamacare drove strong profits for one sector of the Michigan economy: health management organizations (HMOs).
In the first full year of benefits following the state’s expansion of the program in 2014, the 18 Medicaid HMOs in the state collectively had underwriting income of $298 million on premium revenue of $7.7 billion, a 3.9 percent margin. Just four Medicaid HMOs in the state lost money last year, according to an annual marketplace review by Minneapolis, Minn.-based consultant Allan Baumgarten.
The gains last year marked a nearly 83-percent increase from the $163.1 million in underwriting income the organizations reported in 2014.
“Basically the Affordable Care Act created a business opportunity for the health plans and they’re benefitting very much from it, and I expect that to continue for the next few years,” Baumgarten said. “It turned out to be very profitable for HMOs.”
The strong bottom lines for Medicaid HMOs are the result of reimbursement payments that grew faster than medical claims as enrollment ballooned in 2015. More than 600,000 people in Michigan have signed up for Medicaid since eligibility requirements changed in 2014 under the ACA, also known as Obamacare.
When the state expanded the Medicaid program, the expectation was that new enrollees would become high users of health care because of pent-up demand. That did not materialize. In the end, payments to Medicaid health plans grew 31.9 percent and medical claims increased just 19 percent, boosting their bottom lines.
“It turned out that they weren’t heavy utilizers and they utilized less care than the historic Medicaid base,” Baumgarten said.
Grand Rapids-based Priority Health made $12.9 million in underwriting income on its Medicaid HMO, Priority Health Choice Inc., which had about 107,000 members at the end of the first quarter.
One exception to the 2015 trend was Blue Cross Blue Shield of Michigan’s 83,000-member Medicaid HMO, Blue Cross Complete, which had $1.6 million in underwriting losses.
Despite the relatively good year overall for Medicaid HMOs in 2015, Michigan Association of Health Plans Executive Director Rick Murdock cautions that their fortunes could change rapidly. Last year was an “aberration to where we’ve seen the trends” for Medicaid HMOs in recent times, Murdock said.
Via the traditional program and the Healthy Michigan Plan the state created with its expansion, Medicaid is a constantly changing system. For example, reimbursement rates for the 2017 fiscal year that starts Oct. 1 have not yet been finalized, although Murdock generally expects them to go down.
The state’s budget for the 2017 fiscal year, for example, has assumptions built into it for $30 million in savings for spending on emergency room visits, Murdock said. Political shifts with the election year could also result in significant changes to the programs both at the state and federal levels.
“The trend’s going to be downward for the next couple of years, so we’re going to have to be more efficient,” he said. “Everyone’s kind of nervously looking over their back at what’s coming at us and what’s in front of us.”
Overall, HMOs in the state had their best year financially in 2015. They collectively had $16.37 billion in underwriting revenue, $295.2 million in underwriting gains and $97.4 million in investment income, for net income of $330.7 million. That equates to a 2 percent margin.
Priority Health’s commercial HMO was the most profitable in the state, recording net income of $106.3 million on $2.63 billion in underwriting revenue, a $72.3 million underwriting gain and $28.9 million in investment income.
Blue Care Network, the HMO subsidiary of Blue Cross Blue Shield, had $16.8 million in net income on $3.67 billion in underwriting revenue, $3.4 million in underwriting losses, and $22.8 million in investment income, according to Baumgarten.
HMO enrollment in Michigan last year grew 5.7 percent to 3.23 million members across all product lines, including commercial customers, individuals and Medicaid and Medicare recipients.
