Medicaid is one of the few bright spots for health insurers, as they're preparing to capitalize on $40 billion of new opportunities to run privately managed plans for the states, positioning themsevels to benefit from the health overhaul's expansion of Medicaid in 2014.
Medicaid has become a growth area for big insurers such as UnitedHealth Group Inc. and more specialized plans such as Molina Healthcare Inc. Texas and Georgia will solicit new contracts for their private Medicaid plans early next year, while California, Florida and others are likely to meaningfully expand their programs, companies and states have said.
In the next three years, states are offering up many new bids or expansions. In 2014, the health law increases Medicaid by 16 million enrollees, whichmeans another roughly $38 billion in Medicaid revenue, according to Citigroup research. Right now, the firm estimates overall industry revenue at about $56.5 billion.
States want to get vendors lined up now to avoid disruption in 2014, as contracts can run for five or so years at a time. Plans that win bids next year probably will be the ones in place when the big expansion takes place. In preparation, plans are rolling out new programs to address the needs of long-term-care and disabled Medicaid enrollees—populations that some states are adding next year—and are counseling states on how better managing care can save money.
Gail Boudreaux, UnitedHealth's executive vice president, told investors last month that: "The Medicaid space is a significant long-term growth opportunity for us. It's a big market that's getting even bigger." UnitedHealth pegs the value of new bids or expansions over the next three years at $40 billion.
Budget crises mean cash-strapped states are more willing than ever to outsource their programs to private companies. Private companies manage coverage of 70% of Medicaid enrollees, or 33.4 million people, up from 56% in 1999, according to Sanford C. Bernstein.
New state opportunities "seem to be popping up all over the place," said J. Mario Molina, chief executive of Molina, an insurer that specializes in government-sponsored plans. "The economy is still bad, and if you go into managed care, you will save money and you may be able to preserve benefits."
Of course, state budget pressures are causing some states to talk about opting out of Medicaid altogether. New governors could slow things down. Any of those issues could dash companies' hopes to grow.
Kevin Hayden, WellPoint Inc.'s executive in charge of Medicaid, said those challenges worry him but he is moving forward to expand his company's Medicaid business, nonetheless. Those plans include meeting with new state governors' administrations to help shape programs for difficult populations, including aged, blind and disabled enrollees. "We are proceeding as though health-care reform will go forward," he said.
Texas's Medicaid program will grow by about two million people in 2014 due to the health law, the second-largest expansion after California, according to UnitedHealth estimates. Eligibility for Medicaid will be widened to 133% of the federal poverty level, or about $15,000 a year under the health law, making the expansion particularly pronounced in states like Texas, where currently only working parents making 27% of the poverty level qualify.
Next month, the state is expected to kick off rebidding of its existing contracts, issuing a formal request for proposals from insurers, said a spokeswoman for the state department that oversees Medicaid. Contracts to manage various part of the state are then likely to be awarded next summer.
Also early next year, the state is expected to vote on whether to expand private Medicaid in southern regions along the Rio Grande Valley, where the program is currently mainly managed by the government, said Stephanie Goodman, the spokeswoman. That could make the opportunity even bigger.
Up next are Georgia, which will offer plans a chance to rebid early next year, and California, which plans to start mandatory enrollment next year of some 380,000 seniors and people with disabilities. Florida is expected to consider expansion of managed care when its legislature meets in March, according to a spokeswoman for its Agency for Healthcare Administration.
Companies will not say where they intend to place their bids, but with so many opportunities coming up next year, it's an important time to win over state governments. Large national players like UnitedHealth, for instance, say that they are the best choices because they run companies' and
individuals' health plans in addition to Medicaid. The insurer plans to add 225,000 to 300,000 new Medicaid enrollees next year, executives told investors at a conference last month.
"With a single brand to foster stronger relationships and better recognition of what we offer, consumers impacted by economic shifts are able to rely on us as they move between commercial and government-sponsored programs," said Ms. Boudreaux.
WellPoint touts programs it runs that could especially benefit seniors and the disabled, a population that California is enrolling in managed care next year. This year the company launched a program that packages medicines for customers in packets marked breakfast, lunch and dinner, to increase compliance among difficult-to-manage patients.
Pure-play plans such as Amerigroup Corp., Centene Corp and Molina argue that their specialized focus gives them an advantage. "Understanding the state as a customer is quite different than understanding what GE or IBM want as a purchaser," said John Littel, Amerigroup's executive vice president of external relations.
Molina points to the fact that it runs clinics and employs doctors, giving it a window into what patients and providers need from a health plan.
Incumbents lean on that status. Since it is already a major Medicaid plan in Texas, Amerigroup will start an iPad pilot program there in February that aims to manage members' health problems in real time. "We will make the case to Texas that we have a track record of delivering in Texas," said Mr. Littel.