Insurers: Trump trumps all expectations

Before the election, it seemed that the health insurance industry’s worries in 2017 would include slimmer margins and affordability limits—employers and consumers might be hitting a wall on how much they can absorb in premium increases and out-of-pocket costs. And the antitrust fate of the proposed Aetna–Humana and Anthem–Cigna mergers loomed very large.

With Trump in the White House, a whole new array of dramatic changes to the political and regulatory landscape has emerged for the industry. The ACA could be dismantled. Medicare and Medicaid payment policies and innovations could veer in new directions. The fate of the mergers remains in doubt, although a Trump administration might be more inclined to let them go through. That is the way stock pickers see it: Aetna’s and Anthem’s stock prices went up by about 10% the week after the election.

“We started with a fresh piece of paper yesterday,” Aetna CEO Mark Bertolini said after the election. “We had no idea how to approach this.”

Photograph by Bloomberg/Getty Images

The only certainty seemed to be lots of uncertainty. Many of the assumptions about the marketplace that insurance executives, providers, and employers use to make business decisions no longer apply.

“We started with a fresh piece of paper yesterday,” Aetna CEO Mark Bertolini said at a conference on health care sponsored by the New York Times and CNBC two days after the election. “We had no idea how to approach this.”

But as the new administration takes over, business leaders will also be dealing with other marketplace trends. These will include slipping margins for both publicly traded and not-for-profit health plans, says Greg Scott, national leader of Deloitte Consulting’s health plans practice. He says 2015 margins (specifically, EBITDA—earnings before interest, taxes, depreciation, and amortization) were in the range of 4%, compared with sectorwide margins of 7% in 2008.

If this trend continues, it will prompt health plans to tighten their belts in 2017, in part through benefit design. But they’ll soon be bumping up against consumers’ inability to take on additional out-of-pocket costs in the form of higher deductibles and copays, Scott says. “We’re already at the point where many families and individual consumers are going to forgo beneficial care” because of high deductibles, he points out.

The big trend of providers starting health plans will cool off next year as they discover just how difficult the insurance business can be, says Greg Scott of Deloitte.

Insurers will be more pressed to use analytics tools and network design to tweak their bottom lines, he adds. And financial pressures could result in some marginal plans folding or consolidating in 2017, he said, though such developments may be more likely over the longer term. The big trend in providers starting health plans could cool off as they find the insurance business harder going than expected, Scott predicts.

At the same time, radically different health policy from the White House and Congress leaves the insurance environment in 2017 murkier than ever.

Speaking at the conference, Bertolini said guaranteed issue, allowing young adults to stay on their parents’ policies through age 26, and Medicaid expansion are “all very important programs that we need to continue.”

The Aetna insurance executive also delivered a reality check: “Eighty-one percent of the American people hate their health insurance. They hate the health care system. We have too many uninsured. It is not affordable, even for people who make six figures. So it still has to be fixed. We still need to insure everybody.”

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