Slowdown in Premium Increases Tied to Government Reviews

February 28, 2013

HHS attributes a sharp drop in the number of health plan requests for rate increases of 10% or more in the individual market to “increased scrutiny” imposed by healthcare reform.  Of course, an overall slowdown in medical cost trends probably had an impact as well.



AHIP Study Confirms Medicare Advantage Payments Will Fall 7-8% in 2014

February 27, 2013

AHIP Study Confirms Medicare Advantage Payments Will Fall 7-8% in 2014
A study commissioned by the American Assn. of Health Plans (Washington) confirms what several analysts and industry observers have already said (see story, this issues): payments to Medicare Advantage plans will fall a projected 6.9% to 7.8% in 2014.

No Country for Medicare Advantage

February 20, 2013

The big question for Medicare Advantage plans given lower-than-expected 2014 reimbursement rates proposed by CMS is as follows: “Is the Obama Administration out to get us.” 

The argument for “yes” includes the rates themselves.  Wall Street analysts suggest that reimbursements could fall 7% to 9% in 2014–factoring in the impact of ObamaCare cuts, new industry taxes and low cost trends (more on the latter later).  CMS has also limited the ability of Medicare plans to reduce benefits.  (Medicare plans usually try to offset the profit impact of lower rates by cutting benefits). 

How bad is it?  Carl McDonald of Citi notes that the rate cuts and limits on benefit changes “would turn almost every plan in the industry unprofitable, and force many smaller Medicare plans out of the business.”  But McDonald adds, “CMS isn’t likely to let that happen,” which brings us to the argument for “no.”  McDonald and others point to a unique admission by CMS in its rate proposal:

We appreciate that plans are facing several legislatively mandated changes affecting payment for 2014, and this may present challenges for plans. We solicit comment on suggestions to address these challenges. 

In other words, we know the new rates stink, so before you get into real trouble let us know what we can do to fix this.  Justin Lake of J.P. Morgan thinks CMS will probably allow more flexibility on benefit cuts than indicated in the proposal.  He also sees the possibility of an administrative fix to physician fees. 

Finally, Lake notes that the only real surprise in the 2014 rate proposal is the lower-than-expected projected rate of increase in per capita Medicare costs–amounting to 2.3% of the rate reduction.  He sees this as a structural , not a philosophical change: “We do not believe CMS is signaling negative intent toward Medicare Advantage.”

Or as CMS notes:

This negative growth trend is due to historically low growth in Medicare per-capita spending, tied, in part, to successful initiatives undertaken to promote value over volume and help curb fraud, waste, and abuse.

All of which leaves Medicare plans facing a challenging 2014.  No wonder shares in plans with a lot of Medicare Advantage business took a hit, with Humana down 6% yesterday and Universal American down 5%.  Other top plans with less exposure to Medicare Advantage–including Aetna, Cigna, Health Net, UnitedHealth and WellCare–were down 1% to 2%.

An Uninspired 2012 for Health Plan Profits

February 14, 2013

The numbers are in for 11 publicly traded health insurance plans, showing net income virtually unchanged in 2012 at $13.5 billion on revenues of $327.1 billion.  Net margin for the year slipped 500 basis points to 4.1%.   Look for more of the same—or worse—in 2013.


WellPoint Being WellPoint

February 13, 2013

The general consensus among industry observers was that beleaguered health insurance giant WellPoint would name as its next chief executive someone with strong managed care operating experience–especially in the commercial segment, where the company generates the bulk of its earnings.

Instead, effective March 25, WellPoint is going with Joseph Swedish, who for the past nine years has been head of the not-for-profit Catholic health system Trinity Health Corp. (Detroit).  Shares in WellPoint are down nearly 3% in morning trading on the news.  Interim WellPoint CEO John Cannon will remain executive vice president of legal and public affairs.

That doesn’t mean Swedish is a bad choice.  Hiring a hospital executive worked well for troubled Aetna back in 2000 when it tapped John Rowe of Mount Sinai NY Health as its CEO.  Moreover, there’s a growing rationale for having someone with hospital experience heading up a health plan–given the emergence of provider risk-sharing and the concept of integrated, accountable care.

Finally, Swedish is a guy with a lot of healthcare experience.  Prior to joining Trinity, he was chief executive of Colorado-based healthcare provider Centura Health and also served as a divisional president for hospital giant HCA.  He also served from 2010 to 2013 on the board of publicly traded health insurer Coventry Health Care and previously on the boards of Cross Country Health Care and RehabCare Group.

It’s just that the choice of Swedish is yet another surprise from a company that has delivered a lot of drama for some time now.  At age 61, Swedish is even being viewed by some industry observers as transitional.  But if the main goal was steadying the ship in the short run, then why not go with a safer choice ?  Maybe it’s just WellPoint being WellPoint.

Flu Season Eases

February 11, 2013

Citing data from CDC, investment bank Leerink Swann notes that reported cases of flu continue to moderate, adding that “flu related hospitalizations have declined significantly in the past two weeks.”   Still, flu activity is up significantly from last year, which means higher HMO medical costs in the first-quarter of 2013, Leerink says. 



Latest Projections on Impact of ObamaCare

February 8, 2013

From the Congressional Budget Office.

Total cost of ObamaCare  is projected to be $1.165 trillion for the 10 years from 2013 to 2022, about the same as prior projections. 

Exchange membership is projected to hit 26 million in 2022, up about 2% from prior projections.  That’s because…

Employer-sponsored membership is now projected to decline by 7 million, compared to a prior projection of 4 million.  In other words, more people will be dumped into exchanges–largely reflecting tax law changes that reduce the tax benefits associated with employer-sponsored insurance.

Medicaid and CHIP enrollment is expected to rise by 12 million, up from a prior projection of 11 million–reflecting HHS’ decision to deny states’ requests for partial Medicaid expansions.

Medicaid and CHIP spending, however, is projected to increase by $500 billion through 2022, down from an original projection of $643 billion–reflecting an improved assessment of the health status of newly eligible members (including more children) and a recent slowdown in Medicaid spending trends. 

Uninsured will decline by 27 million, compared to a prior projection of 30 million.

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