Why GOP Governors Will Embrace ObamaCare's Medicaid Expansion -- After the Election

Don't pay any attention to the votes and rhetoric coming out of Washington. Health care reform can turn out to be very profitable indeed for some of the GOP's biggest benefactors -- the giant insurance companies.
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The House of Representatives voted for the 33 time last week to repeal ObamaCare, and for the 33 time it was an exercise in futility. The Senate will ignore the House vote and allow the reform law to move forward, just as the Supreme Court did last month.

House members are well aware of all that, so the vote was all for show. And GOP leaders have no intention of repealing the Affordable Care Act because their friends in the health insurance industry are counting on major provisions of the law going forward, especially the expansion of Medicaid. Don't be fooled by Republican governors like Florida's Rick Scott and Texas' Rick Perry, who are saying they'll opt out of the Medicaid expansion now that the Supreme Court says that's allowable. When the Feds start doling out billions in 2014 to bring an additional 16 million Americans into the Medicaid program, they'll be on board. Trust me.

Want proof that Big Insurance has figured out how to make a lot of money off reform? Last Monday WellPoint announced it will pay nearly $5 billion to buy the country's largest private Medicaid managed care company, Amerigroup. Rest assured that lobbyists for WellPoint and other firms wanting to get their hands on that new Medicaid money will have a "here's how it has to be" talk with their buddies on Capitol Hill.

If you look at recent quarterly earnings reports from the big five for-profit insurance companies (UnitedHealth, WellPoint, Aetna, Cigna and Humana), you'll see that the biggest growth in their membership has come not from the private sector but from public programs like Medicare and Medicaid.

The two largest, UnitedHealth and WellPoint, now claim more than 34 million members each, and both companies are now big players in Medicare, through their Medicare Advantage and Medicare supplement plans, and Medicaid. (The private Medicaid companies contract with the states to manage their Medicaid programs, which are funded by both state and federal governments.) In 2011, UnitedHealth's public sector membership increased 6.6 percent, while its commercial (private sector) membership was up just 4.2 percent. WellPoint's growth in the public sector was even more dramatic; Medicare enrollment was up nearly 17 percent last year and Medicaid enrollment grew 6.3 percent. With the Amerigroup acquisition, WellPoint's Medicaid membership will more than double.

While almost all of the big five have reported healthy growth in public sector membership over the past several years, they have reported flat or declining membership in both the individual and small group markets on the private side. They essentially are shunning this business because it's just not profitable enough.

Remember, until the reform law is fully implemented in 2014, insurers can refuse to sell coverage to people because of pre-existing conditions, and they can price their policies for older and less healthy folks -- and women -- beyond what many of them can afford. While WellPoint's public sector membership was growing by leaps and bounds last year, membership in its individual plans fell by 3 percent.

The same thing is happening in what insurers call their small group business. More and more small businesses are finding that they can no longer offer coverage to their employees because of the high premiums insurers are now demanding. That's why the percentage of Americans who get their coverage from their employers is plummeting. According to the Employee Benefit Research Institute, the percentage of non-elderly U.S. residents with private group coverage fell from 69.3 percent in 2000 to 58.7 percent in 2010.

That trend likely will begin to reverse in 2014 when states have their exchanges up and running and most of us will be required to buy coverage if we're not eligible for a public program. Millions of low- and middle-income individuals and families will be eligible for subsidies to help them buy private coverage. Nevertheless, the big insurers will still seek to get more business in the public sector. As Citigroup financial analyst Carl McDonald wrote in his report about WellPoint's proposed acquisition of Amerigroup, when the reform law is fully implemented in 2014 -- and insurers will no longer be able to refuse to sell coverage to people who've been sick in the past or gouge older, less healthy policyholders -- profit margins on the private side will come under pressure. That will not make shareholders happy, so insurers will continue to look for growth in the Medicare and Medicaid programs.

WellPoint's acquisition was the largest of its kind since UnitedHealth bought Americhoice, another Medicaid managed care company, in 2002. That acquisition helped make UnitedHealth the nation's largest private Medicaid company. When WellPoint's acquisition becomes effective, it will leapfrog over UnitedHealth.

McDonald and other analysts are predicting that the other sizable independent Medicaid companies -- Moline, Centene and WellCare -- will be gobbled up soon by the big five. After the WellPoint deal was announced, the share price of those companies shot up.

So don't pay any attention to the votes and rhetoric coming out of Washington. Health care reform can turn out to be very profitable indeed for some of the GOP's biggest benefactors -- the giant insurance companies.


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