Private insurance companies should benefit from demographic trends
Today's US health insurance industry: What you need to know (Part 12 of 24)
Demography
Managed care organizations are part of the healthcare industry, represented by the Healthcare Select Sector SPDR ETF (XLV). They focus on developing health provider networks in states with favorable demographics and social factors.
The above graph shows the Medicare Advantage penetration rate (or MA) in the US. It has gradually increased, from 22.1% in 2008 to 30.1% in 2014. According to a report by Medpac, in 2012, the MA penetration rate was highest for people aged 65 to 79, ranging around 30% to 32%, and just 22% for people above 90 years old.
Medicare Advantage is a health insurance program offered by commercial insurance companies and managed care organizations. This program is sponsored by the government under the Medicare scheme for individuals above 65 years of age and for people with certain disabilities. The MA penetration rate calculates the percentage of people enrolled in the plan out of the total Medicare-eligible people in the country.
The percentage of the population that’s above 65 years old and eligible for Medicare should increase from 12.3% in 2008 to 14.9% in 2015. Analysts project that the percentage will reach 20.6% in 2030. Major managed care organizations such as Cigna (CI), Humana (HUM), UnitedHealth Group (UNH), and AETNA (AET) earned a substantial 35.1%, 78.9%, 41.2%, and 28.6% of their respective revenues from Medicare in 2013. So these companies will benefit from the favorable demographic trend.
Premium
For members who enroll in Medicare Advantage plans, Medicare pays a set amount every month, also called “capitation.” For outpatient expenses—expenses for medical treatments that don’t require hospitalization—patients have to pay a premium to the insurance company. MA plans are costlier than the original Medicare plans. MA enrollees generally have to pay extra premiums to insurance companies. These companies charge higher premiums in states with an older population than states with a younger population, benefitting from demographics.
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