health care utilization

With respective increases of 10.8% and 10.7% in 2023, health care spending on prescription drugs and home health care rose the fastest out of seven health care categories analyzed in a recent Altarum report.

Total national health care expenditures grew by 6.2% last year, while gross domestic product (GDP) increased by 6.3% year over year. In December 2023, health care spending accounted for 17.2% of GDP and has remained below 17.5% since January 2022. About 84% of health spending was attributed to personal health care, half of which was spent on hospital care and physician and clinical services.

Although Blue Cross Blue Shield plans’ margins started rising again in 2023 after a two-year slump, industry analysts say that a diverse array of factors could prevent continued margin expansion among the Blues this year.

“We don’t question that Blues overall will probably remain profitable…but the improvement in the margins in ’23 probably is not going to reoccur [this year],” says Bridget Maehr, director at the insurance-focused credit rating firm AM Best. “We’re probably going to see a little bit more of a normalization of margins.”

According to a new analysis from Mark Farrah Associates, Blues’ aggregate profit margin — net income divided by total revenues — swelled to 6.1% in the third quarter of 2020. During that time, the uptick in COVID-19-related care was far outpaced by declines in routine care, causing coffers to fatten across the insurance industry. Blues’ aggregate margin then declined to 3.9% by the third quarter of 2021, and it fell further to 3.0% in the third quarter of 2022.

A study published this month in JAMA Health Forum indicates people with diabetes can see short-term health benefits from enrolling in plans offering preventive drug lists (PDLs) that sharply reduce or eliminate cost-sharing for certain medications. However, the study’s lead author and a pharmacy benefits consultant tell AIS Health, a division of MMIT, that more work needs to be done to evaluate whether such programs are cost-effective for employer-sponsored plans.

Still, they were encouraged with the results, which found that people who switched to plans with PDLs had an 8.4% reduction in acute, preventable diabetes complication days compared with the non-PDL group. In addition, there was a 10.4% reduction in preventable diabetes complication days among members from lower-income areas who switched to PDLs.

As the second batch of publicly traded insurers posted fourth-quarter and full-year 2023 financial results, continued utilization pressures in Medicare Advantage remained a prominent theme during earnings calls held in the first two weeks of February. Such pressures prompted Humana Inc. to slash its outlook for 2024, but this month only CVS Health Corp.’s Aetna lowered its adjusted earnings per share (EPS) guidance, while The Cigna Group — which is planning to sell its relatively small MA business — raised its outlook.

CVS Health Corp. on Feb. 7 reported fourth-quarter adjusted EPS of $2.12 and full-year adjusted EPS of $8.74. Consolidated revenue grew 11.9% year over year to $93.8 billion, while revenue for the Health Care Benefits segment, which includes Aetna’s MA business, increased 16% to nearly $27 billion. CVS Health said it added 1.3 million members in 2023, which reflected growth across multiple product lines.

As CMS proceeds with its planned phase-in of changes to the CMS-Hierarchical Condition Categories (HCC) risk adjustment model starting this year, the agency on Jan. 31 projected that Medicare Advantage plans next year can expect to receive an average increase of 3.70% in risk adjusted revenue. After picking apart the various factors that go into that assumption, however, the industry is bracing for an effective rate reduction, along with significant changes to the Part D benefit that incited proposed updates to the RxHCC risk adjustment model used to calculate direct subsidy payments to Part D plans.

CMS this time last year projected an all-in rate increase of 1.03%, which included an effective growth rate of 2.09% and expected revenue declines of -3.12% — stemming from changes to the CMS-HCC risk model and fee-for-service (FFS) normalization — and -1.24% due to changes in Star Ratings from the prior year. The agency also estimated an underlying MA risk score trend of 3.30%. Subsequent studies suggested that the removal of thousands of diagnosis codes, renumbering of several HCCs, and other technical changes would reduce plans’ risk scores by anywhere from 2% to 14%. In the final rate notice, CMS revised its all-in rate increase projection to 3.32% after deciding to phase in the risk model changes over a three-year period.

CVS Health Corp. on Feb. 7 lowered its earnings per share (EPS) guidance for 2024, citing high Medicare Advantage cost trends. Wall Street analysts expected the announcement because other insurers, such as UnitedHealth Group and Humana Inc., previously mentioned MA costs as a potential drag on their profits. Meanwhile, The Cigna Group, reporting its fourth-quarter and full-year 2023 results on Feb. 2., increased its EPS guidance for this year and received favorable views from analysts.

CVS projects an adjusted EPS of at least $8.30 this year, down from its previous guidance of at least $8.50 that the company disclosed during its investor day on Dec. 5. The company had an adjusted EPS of $8.74 in 2023.

Centene Corp.’s results for the fourth quarter of 2023 were largely positive, earning mild praise from Wall Street analysts. While Centene was the latest health insurer to face higher-than-expected Medicare Advantage utilization, executives claimed that the firm’s MA performance was far less worrisome than that of its peers — an argument that analysts seemed to accept.

Centene’s Medicare medical loss ratio (MLR) for the quarter was an eye-popping 95.3%, up from 87.5% in the fourth quarter of 2022, an increase of 780 basis points (bps). According to Jefferies analyst David Windley, that figure was 510 bps above Wall Street consensus projection for Centene’s Medicare book of business. However, during a Feb. 6 earnings call, Centene CEO Sarah London and Chief Financial Officer Drew Asher both insisted that the high MLR figure was not a reason for concern, was not caused by the same factors that drove high MLRs for MA peer firms like Humana Inc., and was accounted for in 2024 guidance.

Recently it’s been difficult to underestimate artificial intelligence’s (AI) reach across health care entities such as specialty pharmacies, infusion providers and pharma companies. While AI has helped streamline many processes, its ultimate impact may be debatable at this point, and caution in certain areas is warranted, according to some industry experts.

“AI-enabled solutions have transformed the specialty pharmacy and home infusion industries,” contends Mesfin Tegenu, CEO and chairman of RxParadigm, Inc. He notes that AI’s subset of machine learning (ML) uses algorithms to find patterns and make predictions, leading to streamlined operations, better patient care and optimized resource allocations, all of which have the potential to result in cost savings.

After reportedly vying with Elevance Health, Inc. for the purchase of The Cigna Group’s Medicare Advantage business, Health Care Service Corp. (HCSC) will buy Cigna’s MA, Medicare Supplemental, Medicare Part D and CareAllies assets for a total transaction value of $3.7 billion. HCSC has been aggressively growing its MA business through service area expansions; the addition of Cigna’s MA lives would boost its current share of the segment from 0.62% to 2.40%, according to AIS’s Directory of Health Plans.

In a press release unveiling the deal, the Chicago-based insurer said the acquisition will accelerate its growth in “an important market segment” and “bring many opportunities to HCSC and its members — including a wider range of product offerings, robust clinical programs and a larger geographic reach.” HCSC is customer-owned, meaning policyholders and not stockholders are the owners, and it is an independent licensee of the Blue Cross and Blue Shield Association. Its Blues plans currently enroll 204,638 members across five states: Illinois, Montana, New Mexico, Oklahoma and Texas.

As the first round of fourth-quarter and full-year 2023 financial results were reported by publicly traded insurers in January, modest enrollment growth during the recently concluded Annual Election Period (AEP) and continued utilization pressures were prominent Medicare Advantage themes during earnings calls. Although analysts were particularly concerned with results posted by Humana Inc., which notably moved up its earnings release date, some maintained that the MA-focused insurer remains poised for long-term growth in the sector.

Humana Inc. on Jan. 25 introduced 2024 adjusted earnings per share (EPS) guidance of “approximately $16” — compared with the Wall Street consensus of $29.14. But that was after a regulatory filing indicated that inpatient utilization was higher than expected in the fourth quarter of 2023, primarily during November and December, “as well as a further increase in non-inpatient trends, predominantly in the categories of physician, outpatient surgeries, and supplemental benefits, which emerged with the November and December paid claims data.” Humana’s stock plummeted after the disclosure, and the impact reverberated throughout the managed care sector, denting the share values of competitors including CVS Health Corp. and Elevance Health, Inc.