MCR Debate Gets Ugly for Managed Care

August 30, 2010

Truthfully, I was amazed that minimum medical cost ratio (MCR) requirements ever made it into the healthcare reform law.  Now that it’s in there, the definition of what does (and doesn’t) constitute a medical cost just keeps getting worse for managed care.

The big blow came earlier this month when six key Congressional Democrats including Sen. Max Baucus (D-MT) told HHS Secretary Sebelius that federal income and payroll taxes shouldn’t be excluded from premiums in calculating MCRs; instead, they say, the only exclusion should be for taxes related specifically to revenue derived from the provision of health insurance.

My friend Carl McDonald over at Citi revamped his analysis to reflect the impact of this interpretation: “Our estimate is that federal income taxes  account for between 150-200 basis points of the anticipated increase in reported MLRs. In other words, instead of raising reported MLRs by 500 basis points, it is now possible that the adjusted MLRs will increase by only 300-350 basis points, increasing the rebates that plans are required to return to customers next year.”

Bottom line: even lower profits for health plans in 2011 than originally anticipated. 

Of course, neither Sebelius nor the National Assn. of Insurance Commissions – which is drafting the MCR rules – is required to follow the Democrats’ interpretation of the legislation; the law simply reads that the denominator for calculating MCRs should be “the total amount of premium revenue (excluding Federal and State taxes and licensing or regulator fees).” 

Naturally, insurers are lobbying hard for the broader interpretation.  Extended coverage appears in the Aug. 23 issue of Carl Mercurio’s Health Plan Market Trends Letter.


UnitedHealth vs. McKesson

August 26, 2010

Solid – albeit cheerleading – take by Bloomberg on how UnitedHealth and McKesson are looking to cash in on the need among health insurers to upgrade information technology systems to meet the requirements of healthcare reform.  The article quotes a Gartner analyst stating that in general the technology push could lead to acquisitions of care management companies like Click4Care and ZeOmega.  I’ll agree with that.  I’ll also agree that healthcare reform is creating some exciting momentum.  Just remember this is not a nut cracked by simply buying a fancy, paperless care management system.  Hat tip: Credit Suisse

This Week in Health Plan Market Trends

August 19, 2010

 Here are the headlines from Carl Mercurio’s Health Plan Market Trends Letter for August 16, 2010.

  • Boorady is Bullish on Managed Care Growth Prospects
  • Health Net Provides 0% Bridge Loans to Community Clinics
  • Independence Blue Cross to Sell PBM Unit to Catalyst
  • AHIP Board Supports Ignagni
  • CA HMOs Enjoy Profit Growth in 2009

Quote of the Day: Charles Boorady

August 18, 2010

Credit Suisse analyst Charles Boorady: Accountable Care Organizations could be to “today’s managed care plans what HMOs were to traditional insurers when the HMO act of 1973 was signed.”

UnitedHealth Still Far From Diversification Goal

August 17, 2010

No sooner did UnitedHealth announce plans to diversify further beyond its core medical insurance business than the company agreed to acquire Executive Health Resources (Newtown Square, PA), which helps hospitals with medical necessity compliance for Medicare and Medicaid patients.  EHR, with 1000 employees and more than 1100 hospital clients, will become part of United’s Ingenix division.

How far does the EHR transaction move the needle for United – which believes non-health insurance lines could eventually account for 30% to 40% of company operating earnings, up from 20% today?  “We have quiet some distance to travel to get up into that range.  One or two transactions won’t do it,” says Jon Penshorn, senior vice president of investor relations. 

Extended coverage appears in the Aug. 9 issue of Carl Mercurio’s Health Plan Market Trends Letter.

Boorady is Bullish on Managed Care

August 16, 2010

Somebody likes managed care stocks.  Charles Boorady of Credit Suisse has initiated coverage of the managed care sector with an “overweight” or “buy” rating.  He says investors should buy Coventry, Humana, UnitedHealth and WellPoint, with United being his top pick.  He rates as “hold” Amerigroup, Centene, Cigna, Health Net, Molina and Triple-S.  He has no “sell” ratings.  Notes Boorady, “Winners and losers will emerge in managed care. Winners will have access to public equity capital and invest strategically to offset margin compression by taking market share from 1,200 insurers that may not survive, low-cost to compete on price through exchanges, M&A track record; Medicare, Medicaid & HMO experience; and real-time HCIT capabilities to coordinate with physicians implementing electronic health records and ACOs.”

This Week in Health Plan Market Trends

August 5, 2010

Here are the headlines from Carl Mercurio’s Health Plan Market Trends Letter for August 2, 2010.

  • Evaluating the Aetna, CVS Caremark PBM Deal
  • 2Q10 Health Plan Profits Soar 28%
  • Medco Downgraded; CVS Caremark Sees Improvement
  • A Tale of 2 Medical Homes Initiatives

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