Health Insurers Are Big Winners in Biden’s Inflation Law

 The landmark bill President Biden signed into law earlier this month made quite a bit of noise for going after pharmaceutical companies’ drug prices.

But a separate provision in the law—extending Affordable Care Act subsidies for three years—will make a bigger immediate impact on our healthcare system, with the primary benefactors being insurance companies such as Centene CNC -6.05% and Elevance Health. ELV -1.80%

The extension was crucial for these health insurers because their growth depends on a continued expansion of government support. The pandemic has ushered in an era of big government that has driven the uninsured rate in the U.S. to an all-time low of 8%.

That has been great for previously uninsured people, of course. It also has led to skyrocketing revenue at Centene and Elevance, which derive much of their business from insuring lower-income families through programs such as Medicaid.

Centene, the country’s largest provider of Medicaid, has seen its revenue rise from $60 billion in 2018 to $126 billion in 2021. That figure is expected to continue growing this year, but it is at risk of then declining if pandemic-era measures come to an end.

The biggest concern is that Mr. Biden will declare an end to the public-health emergency, which vastly expanded Medicaid. Since the pandemic started in 2020, states have enjoyed more federal support while being prohibited from kicking people off Medicaid regardless of income levels. So someone who went on Medicaid in early 2020 due to being unemployed as a result of Covid-19 but found a much more lucrative role later on is still receiving Medicaid coverage because states haven’t made a redetermination of her benefits, as is normally required every year. That is unsustainable and unlikely to continue.

For now, the freeze has helped drive Medicaid enrollment to a record 88 million people, an increase of 17 million from February 2020, according to the Kaiser Family Foundation. About 10 million to 15 million of them would lose their insurance once the public-health emergency is declared over, says Gary Taylor, an analyst at Cowen Inc.

The growth in Medicaid isn’t the only part of the health-insurance system at risk. Separate Covid-19 relief measures have driven up enrollment in the marketplace exchanges—also known as Obamacare—to about 15 million. Enrollment there increased thanks to generous subsidies that finally made insurance on the marketplace affordable. Unlike the Medicaid gains, those are now safe because the Inflation Reduction Act extended subsidies for three more years.

The problem for Centene is that it gets less than 10% of its members from that program, compared with almost 60% of its membership pool coming from Medicaid. So a state redetermination, which could come as soon as 2023, is a major threat to its revenue.

But the extension of marketplace subsidies does help to indirectly relieve some of that concern, too. That is because many of the people expected to be kicked out of Medicaid will now have a more affordable insurance plan to switch over to, says Mr. Taylor.

“There’s this churn in this population that moves between Medicaid and the exchanges and the companies are very cognizant of that and very focused on keeping those folks, whichever way they’re moving,” he says.

Insurers such as Centene were sitting on an enrollment cliff before the IRA passed this summer. They are still looking at some headwinds from expected Medicaid changes, but the landmark bill passed in Congress will pull them back from the edge.

https://finnoexpert.com/2022/08/29/health-insurers-are-big-winners-in-bidens-inflation-law/