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Recession Boosts United's Medicaid Business

Buoyed by its AmeriChoice acquisition several years ago, as well as by the recession, UnitedHealth Group is rapidly growing its Medicaid business. In a presentation May 19 at Deutsche Bank's annual health care conference in Boston, AmeriChoice CEO Rick Jelinek outlined how United is "fostering growth in a reform environment"--the title of his talk.

The recession has helped United do this in two ways: First, the rising number of uninsured, including those who have lost their jobs, is increasing the number of people on Medicaid in many states. Second, the national economic stimulus package included $87 billion in new Medicaid funding for the states, and Congress has also reauthorized the State Children's Health Insurance Program. Both initiatives are benefiting companies that contract with states to provide health insurance.

United has expanded its Medicaid operations from 7 states in 2002 to 21 states and Washington, DC, today, Jelinek said. Annual revenue for Medicaid and other state business grew from $1 billion in 2002 to about $6 billion in 2008, and is expected to jump another 25-30 percent this year. Membership in Medicaid and other publicly funded plans soared from 600 million in 2002 to 2.4 million people in 2008, and could hit 2.7 million this year. As one of Jelinek's slides aptly put it, "rising unemployment drives market expansion."

All is not peaches and cream, however. Jelinek pointed out that "intense state budget challenges" put pressure on the amounts that Medicaid programs paid to managed care organizations. While United doesn't break out the ratio of medical costs to premiums by type of business, its first quarter report noted: "The consolidated medical care ratio of 82.4 percent was flat year-over-year, with improvements in the medical care ratio for the commercial risk business offset by higher medical care ratios for the public and senior markets businesses."

If United is spending more of the premium dollar on patient care in its Medicaid plans than in commercial insurance, the states' budget crunch may not be the only reason. To start with, it's able to charge private customers more in good times and bad. Also, privately insured patients tend to be healthier than Medicaid patients. And, despite insurers' gripes about the cost shift from public to private plans, they have more latitude to negotiate what they pay providers in commercial plans. In any case, United's Medicaid business must be profitable or it wouldn't be expanding it.

Partly because of AmeriChoice's ability to deliver cost-efficient insurance coverage to Medicaid programs, United believes it is well positioned for healthcare reform. Not surprisingly, it also supports universal coverage, which would be a bonanza for health insurers as long as their conditions are met. Assuming that Medicaid continues in its current form--and there's no indication that it won't--United and other plans that contract with states will probably continue to do just fine, at least in that segment of their business.

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