Health Insurers' Revenue Growing Under Obamacare: Can It Continue?

Includes: AET, ANTM, CI, UNH
by: Daniel Jennings


UnitedHealth, Cigna, Aetna, and WellPoint have shown significant TTM revenue growth in the last year.

TTM revenue figures indicate that the changes to the health insurance market in the past year are having a positive impact on those companies.

Insurers are expanding businesses to take advantage of opportunities offered by Obamacare, such as the health insurance exchanges.

A court case called Halbig v. Burwell could potentially have a big impact on insurers by ending tax credits that subsidize insurance policies purchased through most Obamacare exchanges.

The TTM revenue figures indicate that Obamacare has turned out to be a very good deal for health insurance companies. Unfortunately lawsuits could put an end to that growth and turn that deal sour in the near future.

Several major health insurers, including UnitedHealth Group (NYSE:UNH), Cigna (NYSE:CI), Aetna (NYSE:AET), and WellPoint (WLP), have shown impressive revenue growth in the last year. These figures demonstrate that health insurers seem to be thriving under Obamacare. They also show that health insurance is definitely a growth industry with a bright future these days.

Some of the most impressive health insurance TTM revenue figures include the following:

  • UnitedHealth Group saw its TTM revenue rise from $116.82 billion in June 2013 to $126.02 billion in June 2014, an increase of over $9 billion.
  • Aetna's revenue grew by more than $14 billion, rising from $39.92 billion in June 2013 to $54.72 billion in June 2014.
  • WellPoint's TTM revenue grew by over $6 billion, rising from $65.94 billion in June 2013 to $71.87 billion in June 2014.
  • Cigna had the smallest increase; its revenues grew from $31.11 billion in June 2013 to $33.45 billion in June 2014. Even though its TTM revenue growth was smaller, Cigna still gained $2.34 billion in new revenue.

These figures show that Obamacare is either having no effect or a positive effect on insurers' revenues. Either way, the numbers indicate that the new health insurance environment is a very good place for the insurers.

It is also obvious that some of the insurers' management teams think that Obamacare is a very good thing. Forbes reported that Cigna, UnitedHealth, and Aetna are all planning to expand their health insurance offerings through the Obamacare exchanges. Cigna alone is planning to expand into three new exchanges in 2015: Maryland, Missouri, and Georgia.

Lawsuit Could Derail Health Insurance Exchanges

That's the good news for health insurance investors, but there is a cloud on the horizon in the form of a federal court case called Halbig v. Burwell. In that case, the U.S. Appeals Court for the District of Columbia ruled that it is illegal for the federal government to operate health insurance exchanges that depend on tax credits. The court found that the federal government is violating the Affordable Care Act by directly operating Obamacare exchanges in 36 states, based on that logic.

Halbig could shut down the exchanges because they use tax credits to cover much of the cost for health insurance policies for lower and middle income people. USA Today estimated that could affect as many as 7.3 million Americans; health insurers' revenues would also take a hit from the disappearance of those revenues.

Fortunately for insurers, Halbig is not the courts' final say on the tax credits. In another case, called King v. Burwell, the Fourth U.S. Circuit Court of Appeals ruled that the federally-run health insurance exchanges are legal. Commentators noted that the case in King was similar to that in Halbig.

Legal experts think that the U.S. Supreme Court will have to settle the issue. It isn't clear if or when the nation's highest court will rule on the issue, but it puts the health insurance exchanges on very shaky legal ground, at least for now.

If Halbig is upheld by the Supreme Court, it could cost insurers a lot of revenue. The Urban Institute and the Robert Wood Johnson Foundation estimated the value of the tax credits issued by those exchanges at $36.1 billion. The insurers would be left with just the 14 states in which exchanges are operated directly by the state governments.

The TTM revenue figures indicate that Obamacare has been a good deal for health insurance shareholders so far. Unfortunately, that revenue growth could be drastically cut by just one court case.

Although, insurers might be able to make up for lost revenue when the Obamacare employer mandate begins next year. The mandate requires all organizations that employ more than 99 people to offer health insurance. In 2016 that mandate will be expanded to cover entities employing between 50 and 99 people.

It looks like Obamacare is a good deal for health insurance companies' revenues. One has to wonder how long this revenue growth can continue.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.