Busines graph with money and arrow

Insurance companies, which had once spent millions to repeal the Healthcare Act fearing that the Affordable Care Act will adversely affect their businesses subject to increase in healthcare costs and reduced coverage, witnessed a surprising upturn in their profit margins. From a report released in October 2011 by the Government Accountability Office (GAO) we infer that contrary to popular reservations, healthcare law aided insurers in garnering increased Medicare revenues and appreciable profit margins.

The report collected and compared financial performances – 18 months before and after the healthcare proposal was signed into a law – of some of the top health insurers in the U.S., such as UnitedHealth Group, WellPoint, Aetna, Humana and Cigna.

The impressive quarterly profits can be largely attributed to insurers’ coalition with various governmental programs such as Medicaid, Medicare Advantage etc., under the healthcare overhaul reforms. These federal programs have aided large healthcare companies in expanding their client outreach.

Other regulations imposed under the healthcare law, such as removal of lifetime dollar limits on health insurance, mandatory insurance coverage to children with pre-existing changes etc., have also resulted in increased enrollments in health insurance–a factor that has positively impacted the insurers’ profit margins.

It is estimated that the insurers will continue to bring home huge profits, more so in 2014, when the healthcare law is anticipated to come into effect.

Medicare Revenues

The Medicare Enrollment is destined to observe an enrollment explosion over the next few years as thousands of baby boomers become eligible for Medicare plans. The GAO report identified that the enrollment in MA plans increased from 7.9 million to 8.4 million–an increase of around 6%–from April 2010 through April 2011.

Quarterly revenues for Medicare increased by one-third – from $12.55 billion to $16.39 billion – for four of the five participating insurers who reported their figures. The Medicare revenue doubled from $2 billion to $4.11 billion for the four insurers’.

Margin Expansion

The combined operating margin for the five insurers averaged 8.65% during the first three quarters of 2011.

In the 18 months following the enactment of the law, the operating margin maintained an average of 8.24% – almost 1 percentage point higher – than the average quarterly margin figures filed by companies over the past decade, with the U.S. Securities and Exchange Commission.

Companies are revamping their business models to align better with the Affordable Act regulations and benefit from the Medicaid expansion plans of the government. Effective January 1, 2014, most Americans who earn less than 133% of the federal poverty level will become eligible for State sponsored insurance coverage. Several States have approached private health plans to provide Managed Care to Medicaid enrollees.

These are promising signs for insurers and consumers alike, indicating that the ACA is a win-win for both parties, eventually leading to a healthier country and a booming healthcare insurance industry.

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