Once a business on the fringes, the individual insurance market is getting more focus from large insurers like Humana and Health Net.
Humana's individual medical membership, for instance, could top one million by year's end. As of March 31, Humana's individual commercial membership stood at 715,000, up more than 40 percent from 505,500 at the end of last year. And now, the company is expecting individual commercial membership to grow by 350,000 to 500,000 lives by the time 2014 closes.
Aetna added 230,000 members from public exchanges in the first quarter and WellPoint gained some 600,000.
What kinds of financial impact these new memberships will have, though, is an unknown that Wall Street is pondering.
"While all the focus has been on Medicare Advantage margins, the battleground for the stock this year may prove to be the individual business," Carl McDonald, Citi Research managed care analyst, wrote in an investors brief.
As McDonald noted, Humana's full earnings expectations of $7.25 to $7.75 per share is contingent of the receipt of at least $575 million in payments from the individual risk adjustment, reinsurance and risk corridors programs, even as other large insurers forecast the programs being of limited benefit.
But a long-term question is how the market will function when the temporary reinsurance and risk corridor programs are phased out, Humana CEO Bruce Broussard said in a conference call.
"One of the large assumptions that's going to have to be vetted out is the rate increases because that's really going to determine how this business transitions from" the risk corridors and the reinsurance programs "to an ongoing business," Broussard said.
Like other insurers, Humana's first quarter was stronger than what analysts were expecting, but with revenue growth outpacing earnings.
Humana posted net income of $368 million, or $2.35 a share, compared to $473 million, or $2.95 a share, in the first quarter of 2013, on revenue that grew by 12 percent to $11.71 billion.
The company now expects full-year revenue of $47 billion to $49 billion and membership increases in Medicare Advantage (of at least 345,000 lives), Medicare Part D (of at least 550,00) and Medicaid (at least 225,000), but also decreases of 20,000 to 30,000 in fully-insured commercial plans and 10,000 to 30,000 in administrative services only plans.
The company now has 2.3 million Medicare Advantage members, 3.8 million Medicare Part D members, 129,000 Medicaid members, 715,000 individual commercial members, and 2.8 million group members, including 1.1 million with self-insured companies using Humana's ASO product.
Between the challenges of Medicare Advantage rates and the uncertainty of new individual members, Humana is lowering its forecasted earnings for its retail segment by about $150 million for the full year, to $1.2 billion, out of a total of $2.1 billion forecasted.
Not too 'messy'
Along with Humana and other majors (Aetna, Centene, Cigna, United and WellPoint), two other insurers booked first quarter results in early May, Health Net and WellCare, both showing growth and not quite the "messy quarter" that Leerink analyst Ana Gupte said Wall Street was expecting for managed care.
Woodland Hills, California-based Health Net had first quarter net income of $28 million, down almost half from the prior year's $50 million, on revenues of $3 billion, up 8 percent year over year.
Health Net's small group and individual commercial membership grew 20 percent in the first quarter, while Medicaid managed care enrollment grew 17 percent and Medicare Advantage grew 9 percent.
Health Net has been one of the big winners in California's health insurance exchange, seeing its share of the state's individual market climb from three percent in 2012 to 18 percent in the exchange's 2014 plan year. It's total enrollment now stands at 2.6 million lives.
Back east, Tampa Bay-based WellCare more than doubled its year-over-year earnings, even while still looking for a new permanent CEO following the departure of Alec Cunningham last November.
The public-sector managed care company posted net earnings of $44 million, on revenue of $2.9 billion, and is now raising its full-year earnings forecast from $3.75-$4.05 per share to $4.40-$4.75 per share, with revenue projected up about $400 million to at least $12 billion.
WellCare's membership is now at 3.5 million -- 1.9 million in Medicaid plans, 342,000 in Medicare Advantage and 1.3 million in Part D -- up 31 percent year over year.
"Our operating results this quarter were primarily due to the strong growth and performance of our Medicaid health plans, offset in part by weaker than anticipated results from our Medicare health and drug plans," Dave Gallitano, chairman of the board and interim CEO, said in a media release.