The US managed healthcare industry includes about 1,000 companies with combined annual revenue of about $500 billion. Major companies include Aetna, UnitedHealth Group, and Humana, as well as the Blue Cross and Blue Shield Association and Kaiser Permanente. The industry is highly concentrated: the 50 largest companies generate about 75 percent of revenue.
Demand for health insurance products is driven by the rising costs of medical care. The profitability of individual companies depends on efficient operations and the ability to negotiate favorable contracts with healthcare providers. Large companies and organizations have advantages in negotiating contracts with healthcare providers. Small companies can compete successfully by providing special coverage plans as part of government programs such as Medicaid, or for specialized populations. The industry is highly automated and capital-intensive: annual revenue per employee is close to $1 million.
The enactment of the Patient Protection and Affordable Care Act (PPACA) of 2010 is just beginning to effect the way managed care companies operate. The PPACA calls for healthcare coverage to be available for all Americans beginning in 2014; the law also eliminates some common exclusions, such as pre-existing conditions. Managed care companies will also compete for customers in state-run health exchanges, where small companies and individuals can buy healthcare coverage. Reductions in Medicare and Medicaid reimbursements also are likely as regulations in the new law tighten coverage and payment rates....