Unemployment claims jumped to 419,000 last week, a sudden increase reflecting an unsettled labor market

Unemployment claims jumped last week, as the delta variant of the coronavirus sparked rising caseloads around the country and renewed fears about the potential for more restrictions and business closures.

The number of new claims grew to 419,000 from 368,000, the third time in six weeks that they had ticked up, according to data from the Department of Labor.

Economists said the uptick was concerning but cautioned that it was too early to tell whether it was a one week aberration or telegraphed a more concerning turn for the labor market.

“The unexpected bump in claims could be noise in the system, but it’s also not hard to see how the rise of the covid-19 delta variant could add thousands of layoffs to numbers that already are double what they were pre-Covid,” said Robert Frick, corporate economist at Navy Federal Credit Union.

Overall, unemployment numbers have been falling gradually from the peaks at other stages of the pandemic, but they are still well above pre-pandemic averages.

The jobless numbers have provided a jarring catalogue about the economic devastation wrought by the pandemic — spiking to records as the pandemic unfolded in March 2020, and remaining at historic high levels throughout most of 2020.

The coronavirus surge last fall helped precipitate a rise in claims that saw the labor market, as seen in the monthly jobs report, slide backward too.

But until recently, the last few months been marked by strong jobs growth and a sense of optimism as vaccinations picked up, giving economists hope that the country was back on track to recovering the nearly 7 million jobs it is still down from before the pandemic.

Now, the delta variant is driving an alarming increase in covid-19 cases around the country, according to public health officials: the number of new cases increased more than 40 percent in the last week, sending jitters through the stock market, and is raising questions about whether state and local health authorities will reinstitute restrictions to slow the virus’ spread.

A new mandate in Los Angeles county to wear masks indoors has sparked protests and anger from local officials, as other counties where cases are increasing mull similar actions.

Frick said that the report showed the potential for unemployment claims to start trending upward after months of steady declines.

“There’s definitely a correlation, however loose, that the rise in covid does cause a rise in claims,” he said. “My fear is that the rise in the delta variant could cause claims to go back up…Certainly one week doesn’t show that. But I wouldn’t be surprised if we start to see claims rise.”

Texas for example, where cases have grown 54 percent in the last week, lead the way with an increase of 10,000 new claims.

However, there are also lots of signs that the economy continues to rebound despite rising caseloads.

The more than 2.2 million people that the Transportation Security Administration said it screened at airports on Sunday was the most since late February 2020 — and nearly three times the amount it was on the same day last year.

Restaurant dining has largely rebounded in recent months, at times surpassing the levels from before the pandemic — on Saturday the number of diners was 1 percent higher than the same day in 2019, according to data from Open Table.

Last week, some 12.5 million claims were filed for unemployment insurance overall, according to the most recent numbers — down from 32.9 million filed at the same point last year.

Nevada, Rhode Island and California topped the list of states with the highest number of people on unemployment, the Labor Department said.

Economic concerns in recent months have been more focused on the ways that workers are still held back from filling some of the more than 9 million job openings in the country, than unemployment, with high hopes that school re-openings in the fall will help many parents get back into the labor force.

CFOs working around cost pressures, labor availability

Labor Shortage, Rising Costs, Supply-Chain Hiccups Hit Manufacturers -  Bloomberg

Dive Brief:

  • While CFOs, on the whole, remain optimistic about an economic rebound this year, they’re concerned about labor availability and accompanying cost pressures, according to a quarterly survey by Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta.
  • Over 75% of CFOs included in the survey said their companies faced challenges in finding workers. More than half of that group also said worker shortage reduced their revenue—especially for small businesses. The survey panel includes 969 CFOs across the U.S.
  • CFOs expect revenue and employment to rise notably through the rest of 2021,” Sonya Ravindranath Waddell, VP and economist at the Federal Reserve Bank of Richmond said. “[But] over a third of firms anticipated worker shortages to reduce revenue potential in the year.”

Dive Insight:

As many companies struggle to find employees and meet renewed product demand, it’s unsurprising CFOs anticipate both cost and price increases, Waddell said.

About four out of five CFO respondents reported larger-than-normal cost increases at their firms, which they expect will last for several more months. They anticipate the bulk of these cost increases will be passed along to the consumer, translating into higher-priced services.

Despite labor concerns, CFOs are reporting higher optimism than last quarter, ranking their optimism at 74.9 on a scale of zero to 100, a 1.7 jump. They rated their optimism towards the overall U.S. economy at an average of 69 out of 100, a 1.3 increase over last quarter. 

For many CFOs, revenue has dipped below 2019 levels due to worker shortage, and in some cases, material shortages, Waddell told Fortune last week. Even so, spending is on the rise, which respondents chalked up to a reopening economy.

“Our calculations indicate that, if we extrapolate from the CFO survey results, the labor shortage has reduced revenues across the country by 2.1%,” Waddell added. “In 2019, we didn’t face [the] conundrum of nine million vacancies combined with nine million unemployed workers.”

Consumer prices have jumped 5.4% over the past year, a U.S. Department of Labor report from last week found; a Fortune report found that to be the largest 12-month inflation spike since the Great Recession in 2008. 

To reduce the need for labor amid the shortage, many companies will be “surviving with just some compressed margins for a while, or turning to automation,” Waddell said.

Health system consolidation as a “safety net”

https://mailchi.mp/26f8e4c5cc02/the-weekly-gist-july-16-2021?e=d1e747d2d8

Might health care consolidation be slowing and if so, why and what might it  mean? A perspective on where we are, how we got here and what is next. —  CASTLING PARTNERS

One of the underappreciated ways in which health systems create value in our healthcare economy, as was recently the topic of discussion with the CEO of an organization we work with, is their role as a “safety net”. We weren’t talking about safety-net providers in the traditional sense—those which serve low-income populations. Rather, we were talking about the ability of larger health systems to acquire and invest in smaller hospitals that might otherwise risk going out of business entirely due to economic pressures.

When economic shocks hit, as was recently the case with COVID, we often see firms close; think of all the restaurant and hospitality businesses forced to shut down over the past year. As the economy rebounds, new business spring up to take their places—that kind of “creative destruction” is commonplace in the larger economy. But when a hospital is forced to shut its doors, it’s a different story, one that could be potentially disastrous for the community. 

Often the most economically vulnerable hospitals are sole providers for their communities; without them, critical medical services could be much less accessible for patients. Enter multi-hospital health systems, which have often stepped in to acquire hospitals in jeopardy. 

By providing access to capital, technology, and management infrastructure, systems have probably kept hundreds of such smaller hospitals in business over the past several decades. Policy analysts are quick to criticize health systems for value destruction: leveraging scale to raise prices, and so forth.

Often valid criticism, but it would be myopic to overlook the fact that systems have also allowed many vulnerable communities to retain access to a viable local hospital. The pushback is often to posit that we simply have too many hospitals to begin with—but try telling that to patients and communities who have lost access to their local source of care.

How would “Medicare at 60” impact health system margins?

https://mailchi.mp/26f8e4c5cc02/the-weekly-gist-july-16-2021?e=d1e747d2d8

An estimate from the Partnership for America’s Healthcare Future predicts that nearly four out of five 60- to 64-year-olds would enroll in Medicare, with two-thirds transitioning from existing commercial plans, if “Medicare at 60” becomes a reality.

In the graphic above, we’ve modeled the financial impact this shift would have on a “typical” five-hospital health system, with $1B in revenue and an industry-average two percent operating margin. 

If just over half of commercially insured 60- to 64-year-olds switch to Medicare, the health system would see a $61M loss in commercial revenue.

There would be some revenue gains, especially from patients who switch from Medicaid, but the net result of the payer mix shift among the 60 to 64 population would be a loss of $30M, or three percent of annual revenue, large enough to push operating margin into the red, assuming no changes in cost structure. (Our analysis assumed a conservative estimate for commercial payment rates at 240 percent of Medicare—systems with more generous commercial payment would take a larger hit.)

Coming out of the pandemic, hospitals face rising labor costs and unpredictable volume in a more competitive marketplace. While “Medicare at 60” could provide access to lower-cost coverage for a large segment of consumers, it would force a financial reckoning for many hospitals, especially standalone hospitals and smaller systems.

S&P upgrades view on nonprofit health sector as COVID-19 cases drop

Dive Brief:

  • S&P Global Ratings on Wednesday upgraded its view on the nonprofit healthcare sector to stable. It had been at negative since March 2020, a view that was affirmed in January.
  • Analysts said the change results from coronavirus vaccination rates and decreasing COVID-19 cases as well as a drop in the unemployment rate that should reduce payer mix shakeup. They also pointed to generally healthy balance sheets across the sector.
  • Headwinds remain, most notably labor expenses as burnout among staff was heavily exacerbated by the pandemic. Increased salaries and benefit expenses will dampen margins going forward, according to the report.

Dive Insight:

The change is another sign for providers that their financial situation is on a rather swift recovery from the upheaval caused by the pandemic. Although some facilities, especially those that are smaller and in rural areas, are certainly still struggling, that was the case before COVID-19 as well.

Most nonprofit health systems reported first-quarter results that showed improved volumes and investment returns. Some are still sporting more than a year’s worth of cash on hand.

Many of them took advantage of federal coronavirus relief funds, most of which can now be used more flexibly. A few, like Kaiser Permanente, did fine without the aid and ended up returning it.

The S&P analysts warned, however, that potential COVID-19 outbreaks this fall would be a setback. That remains a concern with some parts of the country lagging in vaccination rates and the increasing prevalence of more contagious COVID-19 variants.

Other risks include the end of enhanced federal reimbursement and the return of the Medicare sequester cuts when the public health emergency ends, which is expected to be after the end of this year.

But the analysts said agile management teams should be able to combat these challenges.

“[T]o the extent that the pandemic has enabled faster decision making and allowed management teams to pivot and identify new opportunities for expense base restructuring and revenue enhancement, we believe these risks are manageable within our view of the stable sector view,” according to the report.

Rational Exuberance for Medicare Advantage Market Disrupters

Insurers Running Medicare Advantage Plans Overbill Taxpayers By Billions As  Feds Struggle To Stop It | Kaiser Health News

Medicare Advantage (MA) focused companies, like Oak Street
Health (14x revenues), Cano Health (11x revenues), and Iora
Health (announced sale to One Medical at 7x revenues), reflect
valuation multiples that appear irrational to many market observers. Multiples may be
exuberant, but they are not necessarily irrational.


One reason for high valuations across the healthcare sector is the large pools of capital
from institutional public investors, retail investors and private equity that are seeking
returns higher than the low single digit bond yields currently available. Private equity
alone has hundreds of billions in investable funds seeking opportunities in healthcare.
As a result of this abundance of capital chasing deals, there is a premium attached to the
scarcity of available companies with proven business models and strong growth
prospects.


Valuations of companies that rely on Medicare and Medicaid reimbursement have
traditionally been discounted for the risk associated with a change in government
reimbursement policy
. This “bop the mole” risk reflects the market’s assessment that
when a particular healthcare sector becomes “too profitable,” the risk increases that CMS
will adjust policy and reimbursement rates in that sector to drive down profitability.


However, there appears to be consensus among both political parties that MA is the right
policy to help manage the rise in overall Medicare costs and, thus, incentives for MA
growth can be expected to continue.
This factor combined with strong demographic
growth in the overall senior population means investors apply premiums to companies in
the MA space compared to traditional providers.


Large pools of available capital, scarcity value, lower perceived sector risk and overall
growth in the senior population are all factors that drive higher valuations for the MA
disrupters.
However, these factors pale in comparison the underlying economic driver
for these companies. Taking full risk for MA enrollees and dramatically reducing hospital
utilization, while improving health status, is core to their business model.
These
companies target and often achieve reduced hospital utilization by 30% or more for their
assigned MA enrollees.

In 2019, the average Medicare days per 1,000 in the U.S. was 1,190. With about
$14,700 per Medicare discharge and a 4.5 ALOS, the average cost per Medicare day is
approximately $3,200. At the U.S. average 1,190 Medicare hospital days per thousand,
if MA hospital utilization is decreased by 25%, the net hospital revenue per 1,000 MA

enrollees is reduced by about $960,000. If one of the MA disrupters has, for example, 50,000 MA lives in a market, the
decrease in hospital revenues for that MA population would be about $48 million. This does not include the associated
physician fees and other costs in the care continuum. That same $48 million + in the coffers of the risk-taking MA
disrupters allows them deliver comprehensive array of supportive services including addressing social determinants of health. These services then further reduce utilization and improves overall health status, creating a virtuous circle. This is very profitable.


MA is only the beginning. When successful MA businesses expand beyond MA, and they will, disruption across the
healthcare economy will be profound and painful for the incumbents. The market is rationally exuberant about that
prospect.

Michigan systems announce intent to merge

https://mailchi.mp/bade80e9bbb7/the-weekly-gist-june-18-2021?e=d1e747d2d8

Spectrum Health & Beaumont Health to Merge, Creating New Health System for  Michigan | Moody on the Market

On Thursday, Grand Rapids-based Spectrum Health and Southfield-based Beaumont Health signed a letter of intent to merge, in a combination that would create a 22-hospital, $12B company that would become Michigan’s largest health system.

Spectrum CEO Tina Freese Decker will lead the combined company, while Beaumont CEO John Fox will assist with the merger, then depart. The proposed deal would not only create a system spanning much of Michigan, but would also allow for the expansion of Spectrum’s health plan, Priority Health, which accounted for more than $5B of the system’s $8B in revenue, into the Detroit market.

This is the third proposed merger since 2019 for Beaumont, which saw its planned combinations with Ohio-based Summa Health fall apart early in the pandemic; the system’s planned merger with Illinois-based Advocate-Aurora Health was called off in 2020 amid pushback from the system’s medical staff. Both deals fell apart due to challenges in communication and cultural compatibility—which will likely also be the greatest potential stumbling blocks for a Spectrum-Beaumont partnership.

The recently abandoned combination between NC-based Cone Health and VA-based Sentara Healthcare also appears to have fallen apart due to cultural challenges, as have many other recent health system deals. Yet despite a string of cautionary tales, health system mergers continue apace—a sign of the pressure industry players are under to seek scale in order to contend with the growing ranks of disruptive (and well-funded) competitors.

June 2021 Health Sector Economic Indicator Briefs

https://altarum.org/publications/june-2021-health-sector-economic-indicator-briefs

Altarum

Economic Indicators | June 17, 2021

Altarum’s monthly Health Sector Economic Indicators (HSEI) briefs analyze the most recent data available on health sector spending, prices, employment, and utilization. Support for this work is provided by a grant from the Robert Wood Johnson Foundation. Below are highlights from the June 2021 briefs

National health spending growth reflects rebound from COVID-19

  • National health spending in April 2021 was 32.4% higher than in April 2020, reflecting the recovery from the lowest month in spending since the start of the COVID-19 pandemic.
  • Since January 2020, before the pandemic-induced drop began, net growth in national health spending was 1.5% through April 2021.
  • The magnitude of the drop and subsequent recovery has varied by category of spending, with only spending on home health care, prescription drugs, and hospital care reaching levels in April 2021 that exceeded their January 2020 levels.
  • The recovery in spending on dental services continues to lag all other categories, remaining 14.6% below its January 2020 level.

Health care price growth remains stable amid economywide inflation

  • Growth in the overall Health Care Price Index (HCPI) remained mostly steady in May, with prices 2.0% higher than they were a year ago, compared to the 1.9% growth seen in April. The 2.0% rate is below the average since the start of the COVID-19 pandemic, indicating a slight moderation in health care prices.
  • Hospital and physician services prices continue to be the two fastest growing major categories, increasing 3.6% and 3.1% year over year respectively, while nursing home facility and home health care price growth has slowed significantly over the past few months, now up only 2.1% and 1.5% respectively in May.
  • Outside of health care, economywide price growth, as measured by both the consumer price index (CPI) and producer price index (PPI), continued to accelerate, with those measures increasing to 5.0% and 6.6% growth in May. This is the fastest growth for economywide CPI since 2008 and the fastest ever in the series for PPI.
  • As expected, the GDP Deflator (GDPD), which lags a month behind other price data, was significantly higher in April at 3.7%, marking the first time it exceeded health care price growth since September 2019.

Health employment up modestly in May, returning to the December 2020 level

  • Health care added a modest 22,500 jobs in May, mostly in ambulatory care settings. Revisions to March and April took health care jobs up slightly but did not significantly change the story.
  • Health care employment has slowly regained the 80,000 jobs dropped in January 2021 and is now at the level it was at the end of 2020 (15.98 million jobs). The sector remains about 500,000 jobs, or 3.1%, below where it was in February 2020, with a big part of the drop in residential care settings. Additionally, neither hospitals nor ambulatory settings (as a whole) are fully back to pre-pandemic employment.
  • After dropping 35,000 jobs in January 2021, hospital employment has been little changed, with job losses and gains of a few thousand jobs per month in February through May 2021. Hospital employment is 28,000 jobs below where it stood at the end of 2020 and 90,000 jobs, or 1.7%, below the pre-pandemic peak.
  • Nursing and residential care employment continued to fall in May, losing 2,400 jobs. Residential care settings are down 340,000 jobs, or 12.7%, since February 2020, losing jobs in all but one month over that period.
  • The economy added 559,000 jobs and the unemployment rate fell to 5.8%. We have added 2.4 million jobs so far in 2021 but remain 7.6 million jobs (5%) below the level of employment in February 2020.