May 25, 2010
Horizon Blue Cross Blue Shield of New Jersey (Newark) — which two years ago announced its intent to convert from not-for-profit status to a for-profit publicly traded company — confirmed that it suspended all work on the conversion application in light of last year’s state gubernatorial race and the election of a new governor. Horizon hasn’t withdrawn its application with the state of New Jersey to convert; however, the company said it hasn’t decided when it will resume work on the application. The company added that it continues to consider conversion in the context of the healthcare reform. My take was that the conversion of Horizon to for-profit status would be a precursor to an eventual acquisition by WellPoint. Now the question is how much will the profit pressures of reform challenge the company’s financial flexibility — and what options are available assuming no conversion is in the cards.
Correction (May 25, 2010): A statement innacurately attributed to the company was deleted from the above story.
May 24, 2010
Michael Thompson of PricewaterhouseCoopers discusses the impact of healthcare reform on employers and health benefit design in this video interview with our own Patricia Martell. From the Nasdaq Market Site in New York, May 19, 2010.
May 24, 2010
Liz Sweeney of Standard & Poor’s discusses how healthcare reform will impact hospital finances in this video interview with our own Zarina Ahmed. From the S&P offices in New York, May 20, 2010.
May 18, 2010
PriceWaterhouseCoopers outlines in a new report what health plans need to do to survive reform:
Many health insurers will have to lower administrative expenses to meet the new medical loss ratio (MLR) of 85 percent for the large group market and 80 percent for the small group and individual market….Successful insurers will have to shift their attention from group to individual plans, which are expected to triple between 2010 and 2019. Over the next 10 years, growth in the Medicaid coverage will also increase substantially. Health insurers will have to differentiate themselves on price, service, quality, and provider network in the insurance exchanges. With regulations requiring four standard benefit packages, essential health benefits, and limits on cost sharing, insurers will have to compete on factors other than benefit design.
May 17, 2010
The consensus among industry observers is that minimum medical cost ratios required by healthcare reform will eat into the profits of health plans immediately after taking effect in 2011.
“The hit won’t be enormous, as plans will reduce broker commissions and cut non-core SG&A,” says Carl McDonald of Oppenheimer, “but we now anticipate earnings growth of just 3% next year for the larger, diversified plans.”
Health plans must have a medical cost ratio of 80% for individual and small group business and 85% for large, or they will be required to rebate premiums to customers.
Justin Lake of UBS notes that margin pressures from minimum MCRs could be offset by continued improvement in the health insurance underwriting cycle. Still, Lake lowered his 2011 profit growth forecast for managed care reflecting the impact of MCR floors.
Lake says 6% to 11% of the profits of the publicly traded health plans he covers are at risk because of MCR floors. Coventry has the largest exposure at 10% of earnings, he says, followed by Humana and WellPoint, each at 7%.
One company that doesn’t have too many MCR concerns is Health Net. Christine Arnold of Cowen recently upgraded Health Net to a buy – noting that it is one of the few companies that should have no difficulty meeting MCR floors.
May 12, 2010
Whatever your view concerning the 2007 merger of CVS and Caremark (mine, as readers of this blog know, was that it would be a fiasco), one thing was pretty clear: as long as Tom Ryan was in charge, CVS would never admit defeat and dump Caremark.
Well, all bets are off after CVS announced today that Ryan, 58, who holds the titles of chairman, president and chief executive of the company, will retire in May 2011. CVS named Larry Merlo president and chief operating officer; he will take over as CEO after Ryan’s departure. Merlo was most recently president of CVS’ retail pharmacy operations. The company is initiating a search to fill Merlo’s prior job. To assist with the transition, the company has formed an Office of the Chairman comprised of Ryan, Merlo and Per Lofberg, president of the Caremark unit.
Ryan’s departure raises the question of whether the company will attempt to sell the PBM operation. Ryan spearheaded the acquisition of Caremark as part of his grand vision of changing the way healthcare is delivered by integrating drugstores, pharmacy benefits and other services like retail chains – this despite the long history of failure among those who had previously attempted to merge a PBM with a pharmacy chain or drug maker. Ryan’s dream began to crumble after Caremark mismanaged its core PBM business, losing billions of dollars in accounts.
All of which has to be a bitter pill to swallow for Ryan, who spent 36 years at CVS (16 as president) and was instrumental in expanding the company from a regional drug store chain with $5 billion in revenues in 1994 to an organization with revenues of nearly $100 billion ($43 billion in 2006 prior to the merger with Caremark).
Note: Corrected to fix error in Ryan’s planned retirement date.
May 12, 2010
What do you call it when a company outlines a strategy and then delivers on it? Answer: Success. Last year Cigna said it would tighten its U.S. operations while seeking growth globally. In the first-quarter of 2010, the company reported blow-out after-tax profits of $72 million at its international segment, up 76% from the same period a year earlier. Premiums and fees rose 21% to $527 million, while after-tax profit margin jumped 400 basis points to 13%. The company attributed the growth to favorable claims experience in its expatriate benefits business and strong sales and renewals, especially in its health, accident and life insurance line. Cigna also reported a $7 million after-tax gain from currency exchange. Whether the international growth is sustainable remains to be seen, but it’s a good start for David Cordani – now five months into his tenure as CEO.