Predictions 2013

The Dominant Healthcare Headline Next Year? Obamacare


More states will opt for Medicaid expansion.

More than half a dozen states led by Republican governors have said they will not take part in the Medicaid expansion at the heart of the Affordable Care Act, commonly known as Obamacare.

Beyond political opposition, many of those states with fewer residents on Medicaid worry about the cost of expansion. A study by the non-partisan Kaiser Family Foundation found that those states could see their portion of Medicaid costs rise about 11 percent, even with the federal government picking up more than 90 percent of the tab to subsidize insurance for their poor and low-income residents.

But the Kaiser study also found states with higher Medicaid coverage will actually see savings. That's likely to put pressure on states like New Jersey and Oregon to opt for Medicaid expansion. Hospitals will likely be among the stakeholders arguing the loudest for states to opt in, because fewer uninsured will cut down on uncompensated care.

You'll hear a lot about health insurance exchanges.

The big question is whether the states and the federal government will meet the deadline to roll out health insurance exchanges—the online insurance marketplaces that will allow individuals determine whether they're eligible for Medicaid or federal subsidies, and then compare and buy health plans.

To help with the all-out push to build the federally run state exchanges, the Department of Health and Human Services has hired Canadian IT infrastructure firm CGI Group and QSSI, a health IT firm recently acquired by the Optum subsidiary of UnitedHealth Group.

States building their own exchanges have also tapped tech heavyweights. IBM will build exchanges for Maryland and Minnesota, while Xerox will build Nevada's exchange, and Accenture will help build California's system.

I predict the state exchanges will get done in the nick of time, but not without glitches.

Watch for growth in private health exchanges, with more business likely follow the lead of Darden and Sears, which tapped Aon Hewitt to run private health insurance exchanges for their employees in 2013. Other private exchange benefits players to watch: Towers Watson and Mercer Health, a division of Marsh & McLennan Companies.

There will be more M&A with focus on international.

Major health insurers have bet big on the expected expansion of Medicaid under Obamacare, and the growth in Medicare enrollment as more baby boomers reach retirement.

In 2012, WellPoint struck a $4.5 Billion deal to buy Amerigroup, while Aetna agreed to pay $5.6 billion to acquire Coventry Health Care.

Stand-alone Medicaid players Centene and Molina Health have been talked about as acquisition targets, but they are likely to remain independent in 2013.

Expect health care companies to continue their hunt for new profit growth in developing international markets in Asia, the Middle East and Latin America.

It could be a big year for acquisitions like UnitedHealth's $4.9 billion deal to take a 90 percent stake in Brazil's largest health care firm Amil Participaes.

Device makers could see a partial Obamacare tax reprieve.

Medical device makers like Medtronic, Stryker and Boston Scientific face a 2.3 percent excise tax on revenues starting in 2013 under Obamacare. The expected drag on profits has been a headwind for the sector.

It's unlikely the industry will succeed in getting the tax overturned in the current budget negotiation environment. But if device makers succeed in getting a partial rollback, the sector could see a lift.

Over the next couple years, watch for consolidation among device makers as costs rise due to the new tax but continued competition could prevent firms from raising prices.

Hospital stocks will be volatile.

Hospital stocks like Tenet Healthcare and HCA Holdings were big gainers in 2012, but will face some big headwinds in 2013 coming from Washington.

Hospitals are seen benefiting from expanded insurance coverage under Obamacare, because they won't have to set aside as much revenue to cover uncompensated care. A delay in the roll-out of insurance exchanges will be negative for the industry.

A deal on the fiscal cliff could also pressure hospital stocks, if congressional leaders agree to Medicare cuts that go beyond the automatic 2 percent that are scheduled to take effect in January.

Hospital reimbursement revenues are already expected to be pressured in 2013 by new rules, which base rates on success in reducing readmissions among Medicare patients.