health care utilization

Medicare, Medicaid Segments May Be a ‘Mess,’ but Bounce-Back Expected

Although insurers have bet big — and cashed in — on privatized Medicare and Medicaid plans, recently those business lines have shown some signs of distress.

For example, Humana Inc. and CVS Health Corp.’s Aetna this week put concrete numbers behind the Medicare Advantage membership losses that they expect to sustain next year due to significant headwinds facing the MA industry. And heightened medical loss ratios in managed Medicaid dinged the otherwise solid first-quarter 2024 financial results recently reported by Centene Corp. and Molina Healthcare, Inc.

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As Hospitals’ Commercial Prices Keep Rising, Experts Float Solutions

Hospital and outpatient service prices paid by commercial health plans grew in 2022, reaching a national average of 254% of Medicare’s compensation rate that year, according to RAND Corp. researchers. Experts tell AIS Health that they agree with the study’s conclusions that market consolidation is a key contributor to high prices and that higher costs are not correlated with higher quality. But they also say payers aren’t powerless to stem the tide of rising costs.

According to the May 13 RAND research, which is based primarily off an analysis of commercial claims data from all 50 states and all-payer claims database data in states where it is available, hospital and outpatient prices have grown substantially since earlier versions of the same research was published that studied the 2010s. (For a more detailed look at the RAND data, see this infographic.) In addition, the study concluded that there is a strong correlation between market consolidation and high prices.

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Little Engines That Could? Analysts See Lots to Like in Insurtechs’ 1Q

Although first-quarter performance was decidedly mixed for the country’s largest publicly traded health insurers, three startup “insurtechs” — Oscar Health, Inc., Alignment Healthcare, Inc. and Clover Health Investments Corp. — largely impressed industry analysts with their financial results.

Oscar had a particularly outstanding showing, as the Affordable Care Act marketplace-focused insurer recorded its first quarterly profit since its founding in 2012 (the firm went public in 2021). Its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $219 million, which was approximately $100 million ahead of the Wall Street consensus estimate. The firm reported diluted earnings per share of 62 cents, compared to an 18-cent loss in the first quarter of 2023.

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Telehealth Policies May Get Extended, but Conference Speakers Call for More Research

Although telehealth policies that were put in place in March 2020 following the onset of the COVID-19 pandemic are set to expire at the end of the year, congressional leaders are taking steps to extend the policies for an additional two years. Even if the legislation passes, more research needs to be done to assess the benefits and downsides of treating people virtually from a payer, provider and patient perspective, according to speakers at a May 1 panel organized by the National Institute for Health Care Management (NIHCM) Foundation.

The House Ways and Means Committee on May 8 unanimously advanced legislation that would preserve Medicare beneficiaries’ access to telehealth through 2026. Reps. David Schweikert (R-Ariz.) and Mike Thompson (D-Calif.) are sponsors of bill H.R. 8261, which is known as the Preserving Telehealth, Hospital, and Ambulance Access Act.

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Insurers, Retailers Rethink Clinics After ‘Exuberant’ Spending Spree

Some insurers and retailers are backing away from their investments in provider verticals, especially retail health brands. Cigna's stake in VillageMD, a joint venture with Walgreens Boots Alliance Inc., has lost money, and VillageMD will soon close many locations instead of pursuing aggressive growth. Walmart Inc. also said it will close its health care venture.

In recent years, diversified insurers have seen clinics in which they own a stake as a place where they can control cost of care and, ideally, improve member satisfaction by reducing the friction required to access basic care services — in addition to growing revenue in a segment that isn’t capped by medical loss ratio (MLR) rules. But that premise hasn’t always amounted to much more than a compelling story in practice.

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Medicaid MLRs Dent Centene, Molina 1Q Earnings Reports

Higher-than-expected medical loss ratios (MLRs) in Medicaid were a common — albeit minor — pain point for both Centene Corp. and Molina Healthcare, Inc. when the companies reported their first-quarter 2024 financial results.

Centene, which reported its quarterly results on April 26, recorded an MLR of 90.9% for its Medicaid line of business, which was higher (worse) than the Wall Street consensus estimate of 90.3%.

Chief Financial Officer Andrew Asher said during the company’s earnings call that the figure was “a little higher in the quarter than we expected as we continue to work through the appropriate matching of rates and acuity in the short-term.”

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High MA Utilization Spurs CVS 1Q Earnings Miss, Selloff

CVS Health Corp.’s poor Medicare Advantage results in the first quarter of 2024 made the diversified health care and retail company the object of Wall Street’s ire. Analysts were highly critical of the firm’s performance, and the company’s stock price declined sharply on May 1, the day that the results were released.

CVS Chief Financial Officer Thomas Cowhey said during a May 1 earnings call that CVS’s MA segment is poised to “lose a significant amount of money this year.”

CVS’s MA care utilization was notably high, even compared to other listed insurers, who have also had to muddle through high utilization in MA over the past year. According to a press release on the firm’s first-quarter results, medical loss ratio (MLR) for the entire health benefits division during the quarter was 90.4%, up 5.8% year over year.

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For Humana, Solid Start to 2024 Can’t Mask Looming 2025 Troubles

Although Humana Inc. beat Wall Street’s expectations with its first-quarter 2024 earnings per share (EPS), the recently finalized 2025 Medicare Advantage and Part D rate notice nonetheless cast a shadow over the insurer’s longer-term financial projections and thus dimmed analysts’ enthusiasm.

In fact, Humana withdrew its 2025 EPS guidance of $6 to $10, with CEO Bruce Broussard partially blaming the move on the “significant difference between the final rate notice and our previous funding assumption.”

When CMS on April 1 released its final rate projection for MA and Part D plans, the agency said it anticipates plans will see a net revenue increase of 3.70% next year. But that figure did not improve compared to the projected rate increase — despite the industry’s urging — and it represents a 0.16% payment decrease excluding the assumption that MA risk scores will increase by an average of 3.86%. 

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How Does MA Plan Design Impact Enrollment, Equity?

Medicare Advantage plan design — particularly the cost of premiums — has a major influence on who chooses to enroll. The variance in that enrollment mix can have a big impact on outcomes and utilization, according to a new white paper from Inovalon and Harvard Medical School. Using Inovalon’s Medical Outcomes Research for Effectiveness and Economics Registry dataset, which tracks demographic and outcomes information for about 30% of the MA population at any given time, researchers found that socioeconomically disadvantaged populations were more attracted to MA, especially zero-premium products.

“Our research challenges the misconception that Medicare Advantage is a monolith, revealing significant differences in plan designs and features and how those variables affect enrollment and outcomes,” Boris Vabson, Ph.D., a health economist at Harvard Medical School and co-lead researcher on the project, said in an April 8 statement released alongside the research.

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Wall Street Analyst Predicts ‘Multiyear Utilization Catchup’ Post-COVID

Since last summer, major health insurers’ reports of unusually high outpatient care utilization have proven to be a thorn in the industry’s side — inflating medical loss ratios and forcing Humana Inc. to significantly downgrade its 2024 earnings outlook. And according to some Wall Street analysts, the trend isn’t likely to go anywhere soon.

With the COVID-19 pandemic winding down, “grandma has been locked in her house for the last three years; she’s ready to go on a cruise and she wants that new hip, she needs that new knee,” Deutsche Bank Managing Director George Hill said during the annual Wall Street Goes to Washington Roundtable on April 8, hosted by the Brookings Institution. That increased demand, he said, “has resulted in a surge in outpatient orthopedic procedures that we’ve seen, particularly among seniors, particularly impacting the Medicare Advantage books of business.”

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