In the Nation's Interest
Health Insurers and Hospital Earnings Mixed as ACA Kicks In
By Jeffrey Hooke
Vice President and Director of Economic Studies
The Affordable Care Act (or Obamacare) has been in place since January 1, with a number of waivers and grace periods granted for certain groups. We wanted to take a quick look at the initial impact of the law on the financial performance of a few of the larger health insurers and hospital chains. A strong health care industry is important to the economy and to the proper provision of health care.
The revenues of the companies rose for the first six months ended June 30, 2014. Aetna’s revenues jumped 35% principally due to a large acquisition. However, the earnings results were mixed, with some companies having higher income and others recording lower comparisons. See the table.
Financial Results - Selected Health Insurers and Hospital Chains
Comparison of First Six Months of 2014 with Those of 2013
On the insurer side, excluding acquisitions, revenue gains reflected additional customers and an ability to charge higher premiums in some instances.
As the table shows, three of the five health insurers had negative earnings comparisons in 2014’s first half, versus 2013. Two reasons (among others) cited by the firms were connected to the ACA law. One, the ACA mandated new government fees on insurers in order to pay for the ACA benefit, and, two, there were some startup costs involved in the new health insurance exchange process. The three insurers raised premiums, but the increases weren’t sufficient to cover such expenses, according to their SEC filings.
“Same hospital admissions” is a statistic used in the hospital business to eliminate the sales growth deriving from either acquisitions or newly opened hospitals. On a “same hospital” basis, revenues were up 2% to 3%, reflecting inflation and slightly higher visits.
Profit margins were somewhat greater, and one hospital chain noted a specific ACA-related cause contributing to the enhanced profit performance. The ACA and the Medicaid expansion resulted in less uninsured hospital admissions, so the company was getting proper reimbursement for its services. In the prior year, a substantial portion of such services were largely unpaid.