Private plans, public money: Insurers target federal funds

The nation's biggest health plans see government business -- not employer-based or other private-pay customers -- as the biggest engine for growth.

By Emily Berry, AMNews staff. Jan. 28, 2008.

If you want to know why health plans are so interested in government business, check out where the growth is happening at UnitedHealth Group.

United's AmeriChoice Medicaid unit for the first nine months of 2007 saw a revenue increase of $508 million, or 19%, from the same period in 2006, to $3.2 billion of revenue. United Healthcare, which handles the bulk of the company's private-pay business, grew by $511 million on $26.8 billion of revenue, a 2% hike.

United is hardly the only plan seeing such growth. Big health plans are betting on a continued boost from government health programs to boost profits, offsetting slower growth in employer-sponsored health insurance.

"They're all under pressure to show growth, and the source of future growth is expected to be through government programs," said Richard Schnute, a health care consultant with HealthCare Options Inc., an Indianapolis firm.

For many plans, commercial business accounts for the vast majority of revenues and profits. But that growth is topping out, analysts say. After a flurry of deals the last 10 years that consolidated the commercial business by extending plans' geographic reach, insurers can't make any more big, revenue-juicing acquisitions without raising red flags with the Justice Dept.

Also, years of premium increases have driven some employer and individual customers to drop insurance altogether or make other changes in benefits, so premium hikes might not assure financial growth. And the U.S. economy itself can cause a hit. UnitedHealth Group, for example, has blamed a decline in profitability in its Uniprise unit, geared toward big businesses, on "employment attrition at continuing customers."