January 28, 2015 / 11:07 PM / 4 years ago

U.S. health insurers eye higher Obamacare profit margins

NEW YORK, Jan 28 (Reuters) - Top U.S. health insurers say their businesses offering medical coverage under so-called Obamacare are turning into profitable ventures and that they are now aiming to be on par with other sought-after government health programs.

Two of the biggest insurers now say they could see hitting profit margins of near 5 percent for these individual plans created under the Affordable Care Act, often called Obamacare, as costs for new customers have remained manageable so far.

About 9.5 million people have signed up for these plans for 2015, the U.S. government said earlier this week. Nearly 7 million received the coverage in 2014.

This puts the business closer to a profit margin that many insurers earn on the government’s Medicare Advantage health plan for the elderly. Profit margins for running Medicaid plans for the poor range around 3 percent.

One reason insurers are doing well is that medical cost trends have become more predictable, making it easier for them to price plans accurately, according to Dan Mendelson, CEO of health consultancy Avalere Health.

“This is the fastest-growing segment of the business, and it’s profitable,” Mendelson said, referring to Obamacare plans.

Another factor is that use of medical services by Obamacare customers is likely becoming more stable as an initial burst of pent-up demand starts to fade, said Vishnu Lekraj, of Morningstar Research. He predicts the next wave of new Obamacare customers will use medical services even less frequently.

EARLY CAUTION

When the new insurance plans created by President Barack Obama’s healthcare law launched in early 2014, Anthem Inc was cautious about the near-term, saying only that it believed it had priced its plans to be profitable. Aetna Inc said it was losing money on the business.

Their largest rival, U.S. insurer UnitedHealth Group Inc , limited its participation to a handful of states in the first year, concerned over the costs of covering what many predicted would be an older, sicker population of policy holders.

Several insurers said they hoped their Obamacare business would see profit margins of 3 to 5 percent, but only over the longer term as enrollment increased from 7 million people in 2014 to a projected 25 million in 2018.

Now, the view looks different, with some early data showing medical costs for people with Obamacare plans were not markedly different from the broader U.S. population.

Anthem Inc said on Wednesday that profit margins on its individual Obamacare exchange business were already near the top of the 3 to 5 percent range that it has been targeting.

Last week, UnitedHealth Group said that it has planned for an Obamacare profit margin of 1 to 2 percent for this year, but that the end game is toward the top of a 3 to 5 percent range. UnitedHealth has already expanded its Obamacare business, offering coverage in nearly two dozen U.S. states in 2015, with plans to expand further in 2016.

Aetna Chief Executive Mark Bertolini told investors recently that the Obamacare exchange business was modestly profitable. It reports fourth-quarter earnings next week. (Editing by Matthew Lewis)

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