Category Archives: Medical Loss Ratio (MLR)

Medicare Advantage struggling under low payment, high utilization

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Medicare Advantage is in an awkward place.

On the one hand, the alternative to traditional Medicare is still popular among consumers, who have been lured by the promises of lower out-of-pocket costs and increased supplemental benefits. 

On the other hand, Medicare Advantage profitability is on the decline, as shown in recent quarterly reports from the large insurers. The headwinds, executives said during recent earnings calls, have been due to greater than expected utilization of benefits and lower than expected reimbursement from the government. 

Adding to MA’s margin challenges are providers who are making the decision to cut their ties with MA plans rather than deal with delays in prior authorization and claims payments.

Moody’s Investors Service said this year, and an HFMA survey from March indicates 19% of health systems have discontinued at least one Medicare Advantage plan, while 61% are planning to or considering dropping Medicare Advantage payers.

Until recently, the story of Medicare Advantage was one of ascendancy. Just last year it hit a milestone: More than half of eligible Medicare beneficiaries are now in MA plans. So why is business taking a step back?

WHY THIS MATTERS

There are many factors at play, but a big one is the 3.7% rate increase for 2025 that Medicare Advantage plans will receive from the Centers for Medicare and Medicaid Services. The federal government is projected to pay between $500 and $600 billion in Medicare Advantage payments to private health plans, according to the 2025 Advance Notice for the Medicare Advantage and Medicare Part D Prescription Drug Programs released in April. 

The payment rate was considered inadequate by insurers, who were also troubled over other key factors, including a 0.16% reduction in the Medicare Advantage benchmark rate for 2025, which represents a 0.2% decrease.

“AHIP has strong concerns that the estimated growth rate in the Advance Notice – an average of 2.44% – will lead to benchmark changes that are insufficient to cover the cost of caring for 33 million MA beneficiaries in 2025,” AHIP president and CEO Mike Tuffin said in April. “The estimate does not reflect higher utilization and cost trends in the healthcare market that are expected to continue into 2025.”

According to Karen Iapoce, vice president Government Programs at ZeOmega, the cost of running an MA business is increasing due to the burdens being placed on health plans.

“If you sit inside with a health plan, they’re asked to do a lot with not as much bandwidth as they had before,” said Iapoce. “For example, health equity requires plans to have new regulatory guidance they need to meet. There’s a host of measures around health equity. Our plans are not in the business of really understanding how to manage transportation, how to manage housing, so they’re working with other entities. This requires an expert to sit in with the health plan … and then track and report. On the business end, they want to show an ROI, but that could be six months or a year down the line.”

Because of that, she said, the benchmark rate is likely insufficient to cover the projected increase in administrative and other costs. Iapoce said the benchmark rates represent the maximum amount that will be paid to a person in a given county; this is used as a reference point for calculation. If a plan is higher than the benchmarks, the premiums end up going to the beneficiary. More commonly, the plans bid below the benchmark, and the difference represents the rebate plans will receive. But they also factor into risk adjustment.

“The plans are getting into these contract negotiations, so they have to know what goes into that benchmark,” said Iapoce. “I might not be a high utilizer, but you may be. If we’re bringing in a community of high utilizers, there’s no one offsetting that. There’s no balance.”

Richard Gundling, senior vice president, content and professional practice guidance at HFMA, said MA plans started running into these issues when the program crossed over the threshold of more than 50% of beneficiaries.

“When a Medicare Advantage plan comes in, then all the extra administrative burdens come into play,” said Gundling. “So you have prior authorizations, all the issues around lack of payment and denials. Patients get caught in the middle, and in particular elderly patients think they’re still on traditional Medicare.

“It used to be that healthier beneficiaries went into Medicare Advantage,” he added. “Sicker beneficiaries tended to stay in traditional Medicare. That’s not the case anymore, and so there’s a higher spend.”

Gundling said beneficiaries are likely flocking to MA with visions of lower costs and increased benefits such as eyeglasses and hearing aids, and many don’t realize the tradeoffs, such as prior authorizations and network restrictions.

MA remains popular with seniors, but studies show the plans cost the government more money than original Medicare.

A 2023 Milliman report showed annual estimated healthcare costs per beneficiary are $3,138, compared to $5,000 for traditional fee-for-service Medicare, and over $5,700 if a traditional Medicare beneficiary also buys a Medigap plan.

MA membership has grown nationally at an annual rate of 8% to approximately 32 million, while traditional Medicare has declined at an average annual rate of 1%. As that has happened the percentage of people choosing MA has grown to 49% from 28%, data shows.

Yet Medicare Advantage profitability is on the decline, Moody’s found in February. That’s largely because of a significant spike in utilization for most of the companies, which Moody’s expects will result in lower full-year MA earnings for insurers. Adding to that is lower reimbursement rates for the first time in years that are likely to remain weaker in 2025 and 2026, which is credit negative.

Moody’s analysts contend that MA may have “lost its luster,” citing as evidence Cigna’s efforts to sell its MA business, even after a failed merger with Humana. Cigna this past winter announced it had entered into a definitive agreement to sell its Medicare Advantage, Supplemental Benefits, Medicare Part D and CareAllies businesses to Health Care Service Corporation (HCSC) for about $3.7 billion.

Iapoce said Medicare Advantage may be a victim of its own success.

“Because of all this great promotion about what a Medicare Advantage plan can do for you, you’re seeing an increase in enrollment, or more people moving over, and the demographics are starting to change,” she said. 

For many consumers, the appeal of an MA plan is the same as that of an online retailer like Amazon, said Iapoce. Such retailers offer one-stop shopping for a variety of goods, and the perception is that MA essentially offers one-stop shopping for a variety of healthcare services and benefits.

But while this massive shift is happening, it puts providers in an awkward position, said Iapoce.

“Their reimbursement is almost being dictated, in essence, by a health plan,” she said. “It almost feels like the payer has the upper hand over the provider. Think: I’m a provider. It’s my job to get this female with this particular age and condition a mammogram, and the health plan has told me to get her a mammogram. But you, as the health plan, get the money for it. I, as the provider … what am I getting? What’s it doing for me? It becomes this very tense situation, and the provider is probably the entity that is running on the thinnest of staff.”

Gundling expects that despite some “growing pains,” MA will remain viable and continue to grow.

“Nobody’s going to stay still,” said Gundling. CMS has to consider, ‘Are we paying the health plans appropriately for the types of patients they have?’ And then health plans will need to look at their medical utilization rules – ‘Are we overdoing pre-authorization or denying things appropriately?’ And providers need to say, ‘This is a market we need to continue to grow.’

“There’s still going to be a role for it,” he said. “It’s just that we’ve introduced a larger population into it, and I think that’s where a lot of the surprises come in.”

THE LARGER TREND

CVS reported earlier this month that healthcare-benefits medical costs, primarily due to higher-than-expected Medicare Advantage utilization, came in approximately $900 million above expectations. 

Last month, Humana said it expected membership may take a hit from future Medicare Advantage pricing resulting from the CMS payment rate notice. Humana is actively evaluating plan level pricing decisions and the expected impact to membership, president and COO James Rechtin said on the call.

Elevance Health, formerly Anthem, reported a 12.2% earnings increase for Q1, but company margins have not been as affected as those insurers that are heavily invested in the MA market. Fewer of its members are in MA plans compared to other large insurers Humana, CVS Health or UnitedHealth Group, executives said.

A ‘disturbance’ in the force

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Speaking of Andrew Witty, the UnitedHealth chief spurred a freakout last week on Wall Street after he said the company was beginning to see a “disturbance” in its Medicaid medical costs. More people on Medicaid are going to the doctor and hospital, which eats into the insurance company’s profits. 

The biggest insurers that run state Medicaid programs — UnitedHealth, Elevance Health, Centene, and Molina Healthcare — all saw their stocks take a dive after Witty’s disclosure. For the past year, the surge in medical services has mostly been confined to older adults in Medicare Advantage plans.

Wall Street largely did not account for that trend creeping into Medicaid, which covers low-income people.

This switch is largely a function of the government’s Medicaid “redeterminations” process, Centene CEO Sarah London said at a banking conference Friday. During the pandemic, states didn’t have to kick people off Medicaid if they no longer were eligible. But over the past year, states had to redetermine if someone still qualified for coverage, and to boot those that no longer did. As fewer people remain enrolled in Medicaid, the ones who have stayed are sicker and are getting more care. 

Looking ahead, London told investors not to worry. That’s because Centene and other insurers will get more money from state Medicaid programs (translation: taxpayers) over the next several months, through routine payment updates, to match how sick its enrollees are. The explanation worked: The stocks of all the Medicaid insurers rose on Friday.

“We know how to do this,” London said. “This dynamic of redeterminations is unprecedented right now because of the scale. But matching rates to acuity in Medicaid is normal course.”

As a Nightmare Brews on Wall Street for CVS, Executives Scramble to Quell Investors

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I wrote Monday about how the additional Medicare claims CVS/Aetna paid during the first three months of this year prompted a massive selloff of the company’s shares, sending the stock price to a 15-year low.

During CVS’s May 1 call with investors, CEO Karen Lynch and CFO Thomas Cowhey assured them the company had already begun taking action to avoid paying more for care in the future than Wall Street found acceptable.

Among the solutions they mentioned: 

Ratcheting up the process called prior authorization that results in delays and denials of coverage requests from physicians and hospitals; kicking doctors and hospitals out of its provider networks; hiking premiums; slashing benefits; and abandoning neighborhoods where the company can’t make as much money as investors demand.

On Tuesday at the Bank of America Securities Healthcare Conference, Cowhey doubled down on that commitment to shareholders and provided a little more color about what those actions would look like and how many human beings would be affected. As Modern Healthcare reported:

Headed into next year, Aetna may adjust benefits, tighten its prior authorization policies, reassess its provider networks and exit markets, CVS Chief Financial Officer Tom Cowhey told investors. It will also reevaluate vision, dental, flexible spending cards, fitness and transportation benefits, he said. Aetna is also working with its employer Medicare Advantage customers on how to appropriately price their business, he said. 

Could we lose up to 10% of our existing Medicare members next year? That’s entirely possible, and that’s OK because we need to get this business back on track,” Cowhey said.

Insurers use the word “members” to refer to people enrolled in their health plans. You can apply for “membership” and pay your dues (premiums), but insurers ultimately decide whether you can stay in their clubs. If they think you’re making too many trips to the club’s buffet or selecting the most expensive items, your membership can–and will–be revoked.

That mention of “employer Medicare Advantage customers” stood out to me and should be of concern to people like New York Mayor Eric Adams, who was sold on the promise that the city could save millions by forcing municipal retirees out of traditional Medicare and into an Aetna Medicare Advantage plan. A significant percentage of Aetna’s Medicare Advantage “membership” includes people who retired from employers that cut a deal with Aetna and other insurers to provide retirees with access to care. Despite ongoing protests from thousands of city retirees, Adams has pressed ahead with the forced migration of retirees to Aetna’s club. He and the city’s taxpayers will find out soon that Aetna will insist on renegotiating the deal.

Back to that 10%. Aetna now has about 4.2 million Medicare Advantage “members,” but it has decided that around 420,000 of those human beings must be cut loose. Keep in mind that those humans are not among the most Internet-savvy and knowledgeable of the bewildering world of health insurance. Many of them have physical and mental impairments. They will be cast to the other wolves in the Medicare Advantage business.

Welcome to a world in which Wall Street increasingly calls the shots and decides which health insurance clubs you can apply to and whether those clubs will allow you to get the tests, treatments and medications you need to see another sunrise.

As Modern Healthcare noted, Aetna is not alone in tightening the screws on its Medicare Advantage members and setting many of them adrift. Humana, which has also greatly disappointed Wall Street because of higher-than-expected health care “utilization,” told investors it would be taking the same actions as Aetna.

But Aetna in particular has a history of ruthlessly cutting ties with humans who become a drain on profits. As I wrote in Deadly Spin in 2010:

Aetna was so aggressive in getting rid of accounts it no longer wanted after a string of acquisitions in the 1990s that it shed 8 million (yes, 8 million) enrollees over the course of a few years. The Wall Street Journal reported in 2004 that Aetna had spent more than $20 million to install new technology that enabled it “to identify and dump unprofitable corporate accounts.” Aetna’s investors rewarded the company by running up the stock price. 

I added this later in the book:

One of my responsibilities at Cigna was to handle the communication of financial updates to the media, so I knew just how important it was for insurers not to disappoint investors with a rising MLR [medical loss ratio, the ratio of paid claims to revenues]. Even very profitable insurers can see sharp declines in their stock prices after admitting that they had failed to trim medical expenses as much as investors expected. Aetna’s stock price once fell more than 20% in a single day after executives disclosed that the company had spent slightly more on medical claims during the most recent quarter than in a previous period. The “sell alarm” was sounded when the company’s first quarter MLR increased to 79.4% from 77.9% the previous year.

I could always tell how busy my day was going to be when Cigna announced earnings by looking at the MLR numbers. If shareholders were disappointed, the stock price would almost certainly drop, and my phone would ring constantly with financial reporters wanting to know what went wrong.

May 1 was a deja-vu-all-over-again day for Aetna. You can be certain the company’s flacks had a terrible day–but not as terrible as the day coming soon for Aetna’s members when they try to use their membership cards.

Speaking of Lynch, one of the people commenting on the piece I wrote Monday suggested I might have been a bit too tough on Lynch, who I know and liked as a human being when we both worked at Cigna. The commenter wrote that:

After finishing Karen S. Lynch’s book, “Taking Up Space,” I came to the conclusion that she indeed has a very strong conscience and sense of responsibility, not totally to shareholders, but more importantly to the insured people under Aetna and the customers of CVS.”

I don’t doubt Karen Lynch is a good person, and I know she is someone whose rise to become arguably the business world’s most powerful woman was anything but easy, as the magazine for alumni of Boston College, her alma mater, noted in a profile of her last year. Quoting from a speech she delivered to CVS employees a few years earlier, Daniel McGinn wrote: 

Lynch began with a story to illustrate why she was so passionate about health care. She described how she’d grown up on Cape Cod as the third of four children. Her parents’ relationship broke up when she was very young and her father disappeared, leaving her mom, Irene, a nurse who struggled with depression, as a single parent. In 1975, when Lynch was 12, Irene took her own life, leaving the four children effectively orphaned. 

During her speech, several thousand employees listened in stunned silence as Lynch explained how her mom’s life might have turned out differently if she’d had access to better medical treatment, or if there’d been less stigma and shame about getting help for depression. She then talked about how an insurance company like Aetna could play a role in reducing that stigma, increasing access to care, and helping people live with mental illness. 

I’m sure when she goes home at night these days, Lynch worries about what will happen to those 420,000 other humans who will soon be scrambling to get the care they need or to find another club that will take them. Their lives most definitely will turn out differently to appease the rich people who control her and the rest of us.

But she is stuck in a job whose real bosses–investors and Wall Street financial analysts–care far more about the MLR, earnings per share and profit margins than the fate of human beings less fortunate than they are.

Insurers brace for continued Medicare Advantage medical costs

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https://www.healthcaredive.com/news/health-insurer-medicare-advantage-utilization-2024/707360

The big question coming out of the health insurance earnings season is how much elevated utilization among seniors is carrying over into 2024.

Medicare Advantage medical costs dominated fourth-quarter discussions between health insurers and investors, after higher healthcare utilization popped up like weeds in some segments of each payers’ business.

Yet health insurers’ forecasts for how higher utilization will affect their performance in 2024 are night and day.

Some payers controlled medical costs more effectively than analysts expected, said rising spending shouldn’t affect their outlooks for this year or guided to a stronger 2024 than previously forecast. That group includes UnitedHealth, Centene, Elevance and Cigna.

However, Humana and CVS cut their 2024 earnings outlooks on the heels of last year’s results, and said they expect elevated medical costs to continue this year.

Humana’s outlook is especially grim: The Kentucky-based payer’s earnings expectations for 2024 came in about half as low as analysts had expected.

Even payers that emerged from 2023 with their financial outlooks unscathed said they plan to cut benefits or raise premiums this year. The plan redesigns are to protect margins in MA — a business that historically generates significant profits, but is facing challenges that threaten to kill the golden goose.

Why didn’t payers see medical costs coming?

MA plans have skyrocketed in popularity. More than half of Medicare seniors are currently signed up for the plans, attracted by benefits like lower monthly premiums and dental and vision coverage. An onslaught of marketing by insurers didn’t hurt, either, as payers jockey for members. Competition is fierce, as MA margins per enrollee can be twice as high as those in other types of plans.

Yet, more members are creating more problems for some insurers because of rising medical utilization. Starting in the second quarter last year, seniors sought out medical care they had delayed during the COVID-19 pandemic, hiking insurers’ spending.

For example, CVS added 800,000 MA enrollees for 2024, mostly nabbed from other payers after CVS aggressively expanded its benefits. But that’s coming back to haunt the Rhode Island-based insurer, which cut its earnings per share outlook for this year due to high medical costs.

There are a few potential explanations for what’s driving the elevated utilization, and why insurers might not have properly forecast the uptick in trend, according to J.P. Morgan analyst Lisa Gill.

Enrollees in MA tend to be healthier than those in traditional Medicare. But as more seniors join MA, the program’s risk population could be skewing sicker, Gill wrote in an early February research note. Insurers could have missed early warning signs of higher acuity as seniors avoided doctor’s offices during the pandemic.

Higher demand could have also existed earlier, but providers might not have been able to address it because of labor shortages that have now ameliorated, Gill said. Similarly, insurers could have added new MA enrollees with less diagnosis history relative to the rest of their population, resulting in lower visibility into their conditions.

Medical loss ratio is a useful metric for understanding how unexpectedly high utilization is affecting insurers.

Medical loss ratio, or MLR, is a percentage of how much in healthcare premiums insurers spend on clinical services and quality improvement. The higher the MLR, the less in premiums insurers are spending on administration or marketing — or retaining as profit. As such, insurers generally try to keep their MLRs low (though within regulatory bounds to avoid sanctions).

MLRs soared in payers’ Medicare businesses in the fourth quarter, as the utilization trends that emerged earlier in 2023 conflated with a typical seasonal rise in medical spending during the winter months.

Utilization inflation

Insurers chalked the increase in medical costs up to different drivers.

Seniors covered by UnitedHealth and Humana, which together hold almost half of the total MA market share, continued to seek outpatient care in droves in the fourth quarter, including procedures like orthopedic surgeries.

UnitedHealth’s members required more spending on seasonal diseases like the flu, COVID or respiratory virus RSV. Elevance, Centene and CVS also reported elevated outpatient care overall for things like elective procedures, along with higher spend on seasonal needs.

That wasn’t the case for Cigna — which had lower than expected spending on seasonal diseases — and Humana. Humana’s uptick in care was “not respiratory driven,” said CFO Susan Diamond on the payer’s fourth-quarter earnings call in January.

“We don’t have any clear indicators that it is something you can reasonably assume is seasonal,” Diamond said.

As for inpatient care, Centene and CVS didn’t report higher utilization of hospital services than expected. Elevance also didn’t say that inpatient trends were contributing to growing costs.

Yet, UnitedHealth and Humana warned investors about rising inpatient costs, which is concerning for insurers given hospital care is more expensive to cover. UnitedHealth blamed pricey COVID admissions, while Humana said it was seeing more short stays in hospitals across the board.

Humana’s Diamond said recent government regulations requiring MA payers to comply with coverage determinations in traditional Medicare could be a potential driver of the higher inpatient spend. The rule requires insurers to cover an inpatient admission if the patient is expected to require hospital care for at least two midnights.

Other insurers said they had planned for the so-called “two-midnight rule.”

On Feb. 6, Centene CFO Drew Asher told investors that the payer had factored the rule into its planning for 2024. Meanwhile, CVS CFO Tom Cowhey said one day later the company had adjusted internally in response to the rule.

Looking forward

The increase in utilization — combined with weaker payment rates, changes to MA quality ratings and a shifting risk adjustment model — have created an updraft for MLRs, especially for insurers with high exposure to MA like Humana and UnitedHealth.

The big question is how much of this utilization will carry over into this year, and whether payers have properly accounted for utilization changes in their plan designs.

Every major insurer besides Elevance expects to record a higher MLR in 2024 than in 2023. Though, the size of the growth ranges from a 0.8 percentage point increase for UnitedHealth to a 2.7 percentage point increase for Humana.

The outlier, Elevance, expects its MLR to remain flat.

In response to the challenging financial environment, payers — even those that excelled in controlling medical costs last year — said they’ve been pulling back benefits, raising premiums or exiting underperforming markets to boost profitability.

That’s true for insurers that expect their MA membership to grow this year (UnitedHealth, CVS), and those that expect it to fall (Cigna) or stay flat (Elevance).

As a result, further growth could be curtailed as payers prioritize margins.

“We are first and foremost focused on recovering margin, and market share gains is a secondary consideration,” Brian Kane, who leads CVS’ health benefits division, told investors during its February earnings call.

“I look at next year as a year that I think the whole industry will possibly reprice. I don’t know how the industry can take this kind of increase in utilization along with regulatory changes that will continue to persist in 2025 and 2026,” Humana CEO Bruce Broussard said on the payer’s earnings call.

Insurers said they could revise plans further in light of MA rates for 2025 that the government proposed midway through the earnings reporting season. The rates represent a renewed effort by regulators to rein in growing spending in Medicare.

Executives with Humana, Centene and CVS all said the payment changes are insufficient to cover cost trends. Humana and Centene said the rule would result in a 1.6% and 1.3% drop in rates, respectively. (That’s before risk scoring, which should result in an overall increase in reimbursement in 2025).

Insurers warned regulators that seniors could see their benefits reduced if they finalize the rates as proposed.

“We’ll just adjust the bids accordingly,” Asher said on Centene’s call. “The products may be a little less attractive for seniors from an industry standpoint if we don’t make a lot of progress on the final rates.”

CVS slashes 2024 outlook — again — as Medicare seniors drive spending

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Runaway inpatient spending in particular caused CVS’ insurance costs to snowball after returning “to patterns we have not seen since the start of the pandemic,” its CFO said.

Dive Brief:

  • CVS had a significantly worse first quarter than the healthcare giant — or Wall Street — expected, after its insurance arm failed to adequately prepare for seniors’ high use of medical care, especially in inpatient facilities.
  • The Rhode Island-based company’s health services segment — usually a reliable driver of growth — also saw its revenue and income fall in the quarter as its pharmacy benefit manager adjusted to the loss of a major contract with insurer Centene.
  • CVS slashed its earnings expectations for 2024 on Wednesday following the results. It’s the second time the company has lowered financial expectations this calendar year. “Clearly this is a disappointing result for us,” CFO Tom Cowhey said on a Wednesday call with investors, after which CVS’ stock fell more than 19%.

Dive Insight:

CVS brought in revenue of $88.4 billion in the quarter, up 4% year over year but significantly below analysts’ expectations. Net income was slashed by almost half compared to the prior-year quarter, to $1.1 billion.

The quarter was “burdened by utilization pressures in Medicare Advantage,” CEO Karen Lynch said on the call.

Starting last year, MA seniors began using higher levels of medical services after a long dry spell during the COVID-19 pandemic. The trend has continued into this year, leaving private insurers that manage the plans scrambling to contain costs.

CVS assumed utilization would moderate somewhat coming into the first quarter, but instead it was “notably above” expectations, according to Lynch.

Outpatient services, like mental health and medical pharmacy, along with supplemental benefits like dental continued to be elevated in the first quarter. However, inpatient utilization was particularly to blame for runaway spending.

Inpatient admissions per thousand in the quarter were up “high-single digits” compared to the same time last year, Cowhey said. A small portion of the growth was expected due to implementation of the CMS’ two-midnight rule that’s resulted in insurers having to cover more inpatient admissions. But overall, admissions “meaningfully exceeded” expectations for the quarter, according to the CFO.

“Inpatient seasonality returned to patterns we have not seen since the start of the pandemic,” Cowhey said.

Executives stressed that some of those costs appear to be seasonal and shouldn’t carry into the rest of the year. Inpatient utilization patterns are similar to what CVS’ insurance arm Aetna saw in normal years before the COVID-19 pandemic, and appear to be moderating in April, according to Lynch.

Still, the higher utilization caused the insurer’s medical loss ratio — a marker of spending on patient care — to soar to 90.4% in the first quarter, compared to 84.6% during the same time last year.

Overall, medical costs in the quarter were about $900 million higher than CVS expected, Cowhey said.

CVS’ results suggest the insurer “severely underestimated utilization of new members,” TD Cowen analyst Charles Rhyee wrote in a Wednesday morning note. “Investors already had lowered expectations for MA, but actual results and impact to guidance is likely way worse than expected.” 

CVS added more MA members coming into 2024 than any other U.S. health insurer, according to an analysis by consultancy Chartis. That growth caused CVS’ membership to grow 1.1 million members in the first quarter compared to the end of 2023, to 26.8 million individuals.

Revenue in CVS’ health benefits segment, which houses its insurer Aetna, subsequently inflated to $32.2 billion, up 21% compared to the fourth quarter of 2023.

Despite the boom, higher medical costs slashed the segment’s operating income, as did the impact of lower quality ratings in MA.

Lower quality or “star” ratings for 2024 cut steeply into CVS’ reimbursement. Aetna’s largest contract fell from 4.5 stars to 3.5 stars for 2024, causing the payer to lose out on about $800 million in revenue.

As a result of the pressures, “we think [MA] will lose a significant amount of money this year,” Cowhey said.

Following the quarter, CVS lowered its full-year financial expectations for earnings per share on a GAAP and adjusted basis, and for cash flow from operations.

CVS expects to notch an MLR of 89.8% in 2024, up 2.1 percentage points from its previous guidance, because of continued medical utilization pressures, Cowhey said.

Moving into 2025, CVS does expect to recover most of what it lost this year from the star ratings changes. But the insurer faces another setback: MA payment rates recently finalized for 2025 that insurers are slamming as a cut, despite only a modest decrease in base rates.

On the call, Lynch maligned the rates as “insufficient” and a “significant added disruption” in the program.

Like its other peers with major MA footprints, CVS plans to focus on improving profits at the potential expense of members. That includes hiking premiums and exiting counties where Aetna thinks it can’t improve profits in the near term. Aetna could lose members as a result, but the size of eventual losses will in large part depend on what the insurer’s competitors do, according to CVS executives.

Other major MA payers have said they will take similar steps to hike profits.

CVS also dealt with lower visibility into its claims in the quarter because of the massive cyberattack on claims clearinghouse Change Healthcare earlier this year. Change took its systems offline as a result, hamstringing providers’ payments across the U.S. and making it harder for insurers to predict how much they might have to spend on their members’ medical costs.

CVS established a reserve of nearly $500 million for claims it estimates were lodged in the quarter but it has yet to receive. Cowhey said the insurer is “confident” about the adequacy of its reserves.

UnitedHealth Group takes Wall Street hit because of investors’ fears about Medicare Advantage profitability, Department of Justice antitrust investigation

Posted on by • Posted in Antitrust, Dept of Justice (DOJ), Health Insurance Industry, Medical Loss Ratio (MLR), Medicare Advantage, Utilization Trends • Leave a comment
https://wendellpotter.substack.com/p/unitedhealth-group-takes-wall-street?utm_source=post-email-title&publication_id=255152&post_id=142147224&utm_campaign=email-post-title&isFreemail=true&r=59t65&triedRedirect=true&utm_medium=email

STAT News today published an op-ed I coauthored with Dr. Philip Verhoef, president of Physicians for a National Health Program, making the point that investors are among the growing number of stakeholders who are souring on big, for-profit insurance companies like the ones I used to work for (Cigna and Humana). 

We focused specifically on investors’ concerns about the continued profitability of Medicare Advantage plans most of the big insurers own and operate.

Several companies have lost billions of dollars in market capitalization over the past several weeks as they have reported what they maintain is higher than usual utilization of health care goods and services by seniors enrolled in MA plans. 

Today, the companies–especially UnitedHealth Group, the market leader with 7.6 million Medicare Advantage enrollees–are losing billions more in market cap on the news, broke yesterday by the Wall Street Journal, that the Department of Justice is investigating UnitedHealth’s many acquisitions over the years.

UnitedHealth and most of the other companies are no longer just insurance companies. They’ve moved rapidly into health care delivery by buying physician practices and clinics, and three of them, UnitedHealth, Cigna and CVS/Aetna, control 80% of the pharmacy benefit management business. 

As Phil and I wrote in our op-ed:

Investors in MA insurance companies experienced a rude awakening in late January, with insurer stocks plummeting in the face of earnings reports showing profits falling far below expectations in the last quarter of 2023. Companies like CVS Health and UnitedHealth Group saw losses of 5.2% and 6.2% respectively, while Humana, whose business model relies heavily on the MA program, fell an astonishing 14.2%. These insurers cited higher than average health care utilization rates as the culprit and warned that 2024 would likely see more of the same. At the same time, private equity investment in MA has fallen, showing waning confidence in the program. 

We went on to note that both Democrats and Republicans in Congress are increasingly concerned about MA insurers’ business practices and, among other things, have introduced bills to crack down on egregious overpayments to MA plans. 

The WSJ reported yesterday that the Justice Department has launched an antitrust investigation into UnitedHealth, which has become not only the country’s biggest U.S. health insurer but also a leading manager of drug benefits “and a sprawling network of doctor groups.”

The Journal’s Anna Wilde Mathews and Dave Michaels wrote that:

The investigators have in recent weeks been interviewing healthcare-industry representatives in sectors where UnitedHealth competes, including doctor groups, according to people with knowledge of the meetings.

The DOJ’s investigation of UnitedHealth is wide-ranging. Among other things, according to the Journal, “investigators have asked whether and how the tie-up between UnitedHealthcare [the insurance division] and Optum’s medical groups might affect its compliance with federal rules that cap how much a health-insurance company retains from the premiums it collects. (Optum is the company’s division that encompasses the pharmacy benefit manager Optum Rx and the many clinics and physician practices it owns.)

HEALTH CARE un-covered explained last month how UnitedHealth essentially is paying itself billions of dollars every month and circumventing the intent of a federal law that requires insurers to spend at least 80% of premium dollars on their health plan enrollees’ health care.

I know from sources within the Justice Department that investigators saw that piece, as well as the comprehensive analysis we published earlier of the scores of acquisitions UnitedHealth has made in recent years that have enabled it to catapult to the top five of the Fortune 500 list of American companies. 

Those sources told me that the DOJ is very concerned about the consolidation within both the health insurance business and the hospital industry. Many U.S. hospitals, in an ongoing effort to negotiate from an enhanced position of strength with UnitedHealth and the other vertically integrated insurers, have merged with each other in recent years and become part of huge health-care delivery systems.

At the close of trading on the New York Stock Exchange yesterday, shares of UnitedHealth Group’s share were down $11.90 or 2.27%. Investors are continuing to head for the exits today. As I write this, the company’s stock price has fallen another $20 (4%) to $494.00. That’s way down from the company’s 52-week high of $554.70.

Shares of most of the other big publicly traded insurers (Centene, Cigna, CVS/Aetna, Elevance, Humana and Molina) are also down, ranging from $.83 at CVS to $11.51 at Humana.

ACA enrollment continues at a record pace 

Posted on by • Posted in 2024 Election Issues, ACA, Essential Health Benefits, Health Insurance Coverage Adequacy, Health Policy, Healthcare Reform, Medicaid Expansion, Medical Loss Ratio (MLR), Out of Pocket Expenses, Preexisting Conditions, Underinsured, Uninsured • Leave a comment

https://nxslink.thehill.com/view/6230d94bc22ca34bdd8447c8k3p6r.11v6/ce256994

Affordable Care Act (ACA) enrollment appears poised to reach record levels once again as signups grew by more than a third of what they were this time last year, a fact the White House is using to continue to draw attention to former President Trump’s threats to try again to repeal the law.  

More than 15 million people have signed up for plans in states that use HealthCare.gov, representing a 33 percent increase from last year. The Biden administration estimates 19 million will sign up for plans by the Jan. 16 deadline.  

On Dec. 15, the deadline for coverage starting Jan. 1, more than 745,000 people selected a plan through HealthCare.gov — the most in a day in history, the Department of Health and Human Services said.  

For 2023 plans, more than 16.3 million people signed up through HealthCare.gov last year, another record. Of those who enrolled for this year, 22 percent were new to the marketplace. 

This year’s enrollment had some unusual factors that may have played a part in boosting enrollment. Those who were disenrolled from Medicaid this year during the “unwinding” period were allowed to sign up for ACA plans earlier than normal. 

There was also stronger insurer participation in the program this year, providing significantly more options for customers to choose from. 

“Thanks to policies I signed into law, millions of Americans are saving hundreds or thousands of dollars on health insurance premiums,” President Biden said on Wednesday. 

“Extreme Republicans want to stop these efforts in their tracks,” he added. “At every turn, extreme Republicans continue to side with special interests to keep prescription drug prices high and to deny millions of people health coverage.” 

The Affordable Care Act is Back on Stage: What to Expect

Posted on by • Posted in 2024 Election Issues, ACA, Affordability, American Recovery and Reconstruction Act (ARRA), District Court, District Court of Appeals, Health Insurance Coverage Adequacy, Healthcare Reform, Medical Loss Ratio (MLR), Misinformation, Mislead, Misleading, Preexisting Conditions, Public Opinion, Public Perception, Supreme Court, Triple Aim • Leave a comment
The Affordable Care Act is Back on Stage: What to Expect

In the last 2 weeks, the Affordable Care Act (ACA) has been inserted itself in Campaign 2024 by Republican aspirants for the White House:

  • On Truth Social November 28, former President Trump promised to replace it with something better: “Getting much better Healthcare than Obamacare for the American people will be a priority of the Trump Administration. It is not a matter of cost; it is a matter of HEALTH. America will have one of the best Healthcare Plans anywhere in the world. Right now, it has one of the WORST! I don’t want to terminate Obamacare, I want to REPLACE IT with MUCH BETTER HEALTHCARE. Obamacare Sucks!!!!” 
  • Then, on NBC’s Meet the Press December 3, Florida Governor Ron DeSantis offered “We need to have a healthcare plan that works,” Obamacare hasn’t worked. We are going to replace and supersede with a better plan….a totally different healthcare plan… big institutions that are causing prices to be high: big pharma, big insurance and big government.”

It’s no surprise. Health costs and affordability rank behind the economy as top issues for Republican voters per the latest Kaiser Tracking Poll. And distaste with the status quo is widespread and bipartisan: per the Keckley Poll (October 2023), 70% of Americans including majorities in both parties and age-cohorts under 65 think “the system is fundamentally flawed and needs major change.” To GOP voters, the ACA is to blame.

Background:

The Affordable Care Act (aka Obamacare aka the Patient Protection and Affordable Care Act) was passed into law March 23, 2013. It is the most sweeping and controversial health industry legislation passed by Congress since Lyndon Johnson’s Medicare and Medicaid Act (1965). Opinions about the law haven’t changed much in almost 14 years: when passed in 2010, 46% were favorable toward the law vs. 40% who were opposed. Today, those favorable has increased to 59% while opposition has stayed at 40% (Kaiser Tracking Poll).

Few elected officials and even fewer voters have actually read the law. It’s understandable: 955 pages, 10 major sections (Titles) and a plethora of administrative actions, executive orders, amendments and legal challenges that have followed. It continues to be under-reported in media and misrepresented in campaign rhetoric by both sides. Campaign 2024 seems likely to be more of the same.

In 2009, I facilitated discussions about health reform between the White House Office of Health Reform and the leading private sector players in the system (the American Medical Association, the American Hospital Association, America’s Health Insurance Plans, AdvaMed, PhRMA, and BIO). The impetus for these deliberations was the Obama administration’s directive that systemic reform was necessary with three-aims:  reduce cost, increase access via insurance coverage and improve the quality of care provided by a private system. In parallel, key Committees in the House and Senate held hearings ultimately resulting in passage of separate House and Senate versions with the Senate’s becoming the substance of the final legislation. Think tanks on the left (I.e. the Center for American Progress et al.) and on the right (i.e. the Heritage Foundation) weighed in with members of Congress and DC influencers as the legislation morphed. And new ‘coalitions, centers and institutes’ formed to advocate for and against certain ACA provisions on behalf of their members while maintaining a degree of anonymity.

So, as the ACA resurfaces in political discourse in coming months, it’s important it be framed objectively. To that end, 3 major considerations are necessary to have a ‘fair and balanced’ view of the ACA:

1-The ACA was intended as a comprehensive health reform legislative platform. It was designed to be implemented between 2010 and 2019 in a private system prompted by new federal and state policies to address cost, access and quality. It allowed states latitude in implementing certain elements (like Medicaid expansion, healthcare marketplaces) but few exceptions in other areas (i.e.individual and employer mandates to purchase insurance, minimum requirements for qualified health plans, et al). The CBO estimated it would add $1.1 trillion to overall healthcare spending over the decade but pay for itself by reducing demand, administrative red-tape and leveraging better data for decision-making. The law included provisions to…

  • To improve quality by modernizing of the workforce, creating an Annual Quality Report obligation by HHS, creating the Patient Centered Outcome Research Institute and expanding the the National Quality Forum, adding requirements that approved preventive care be accessible at no cost, expanding community health centers, increasing residency programs in primary care and general surgery, implementing comparative effectiveness assessments to enable clinical transparency and more.
  • To increase access to health insurance by subsidizing coverage for small businesses and low income individuals (up to 400% of the Federal poverty level), funding 90% of the added costs in states choosing to expand their Medicaid enrollments for households earning up to 138% of the poverty level, extending household coverage so ‘young invincibles’ under 26 years of age could stay on their parent’s insurance plan, requiring insurers to provide “essential benefits” in their offerings, imposing medical loss ratio (MLR) mandates (80% individual, 85% group) and more.
  • To lower costs by creating the CMS Center for Medicare and Medicaid Innovation to construct 5-year demonstration pilots and value-based purchasing programs that shift provider incentives from volume to value, imposing price and quality reporting and transparency requirements and more.

The ACA was ambitious: it was modeled after Romneycare in MA and premised on the presumption that meaningful results could be achieved in a decade. But Romneycare (2006) was about near-universal insurance coverage for all in the Commonwealth, not the triple aim, and the resistance calcified quickly among special interests threatened by its potential.

2-The ACA passed at a time of economic insecurity and hyper-partisan rancor and before many of the industry’s most significant innovations had taken hold. The ACA was the second major legislation passed in the first term of the Obama administration (2009-2012); the first was the $831 billion American Recovery and Reconstruction Act (ARRA) stimulus package that targeted “shovel ready jobs” as a means of economic recovery from the 2008-2010 Great Recession. But notably, it included $138 billion for healthcare including requirements for hospitals and physicians to computerize their medical records, extension of medical insurance to laid off workers and additional funding for states to offset their Medicaid program expenses. The Obama-Biden team came to power with populist momentum behind their promises to lower health costs while keeping the doctors and insurance plans they had. Its rollout was plagued by miscues and the administration’s most popular assurances (‘keep your doctor and hospitals’) were not kept. The Republican Majority in the 111th Congress’ (247-193)) seized on the administration’s miss fueling anti-ACA rhetoric among critics and misinformation.

3-Support for the ACA has grown but its results are mixed. It has survived 7 Supreme Court challenges and more than 70 failed repeal votes in Congress.  It enjoys vigorous support in the Biden administration and among the industry’s major trade groups but remains problematic to outsiders who believe it harmful to their interests. For example, under the framework of the ACA, the administration is pushing for larger provider networks in the 18 states and DC that run their own marketplaces, expanded dental and mental health coverage, extended open enrollment for Marketplace coverage and restoration of restrictions on “junk insurance’ but its results to date are mixed: access to insurance coverage has increased. Improvements in quality have been significant as a result of innovations in care coordination and technology-enabled diagnostic accuracy. But costs have soared: between 2010 and 2021, total health spending increased 64% while the U.S. population increased only 7%.

So, as the ACA takes center stage in Campaign 2024, here are 4 things to watch:

1-Media attention to elements of the ACA other than health insurance coverage. My bet: attention from critics will be its unanticipated costs in addition to its federal abortion protections now in the hands of states. The ACA’s embrace of price and quality transparency is of particular interest to media and speculation that industry consolidation was an unintended negative result of the law will energize calls for its replacement. Thus, the law will get more attention. Misinformation and disinformation by special interests about its original intent as a “government takeover of the health system” will be low hanging fruit for antagonists.

2- Changes to the law necessary intended to correct/mitigate its unintended consequences, modernize it to industry best practice standards and responses to court challenges will lend to the law’s complex compliance challenges for each player in the system. New ways of prompting Medicaid expansion, integration of mental health and social determinants with traditional care, the impact of tools like ChatGPT, quantum computing, generative AI not imagined as the law was built, the consequences of private equity investments on prices and spending, and much more.

3-Public confusion. The ACA is a massive law in a massive industry. Cliff’s Notes are accessible but opinions about it are rarely based on a studied view of its intent and structure. It lends itself to soundbites intended to obscure, generalize or misdirect the public’s attention.  

4-The ACA price tag. In 2010, the CBO estimated its added cost to health spending at $1.1 trillion (2010-2019) but its latest estimate is at least $3 trillion for its added insurance subsidies alone. The fact is no one knows for sure what its costs are nor the value of the changes it has induced into the health system. The ranks of those with insurance coverage has been cut in half. Hospitals, physicians, post-acute providers, drug manufacturers and insurers are implementing value-based care strategies and price transparency (though reluctantly) but annual health cost increases have consistently exceeded 4% annually as the cumulative impact of medical inflation, utilization, consolidation and price increases are felt.

Final thought:

I have studied the ACA, and the enabling laws, executive orders, administrative and regulatory actions, court rulings and state referenda that have followed its passage. Despite promises to ‘repeal and replace’ by some, it is more likely foundational to bipartisan “fix and repair’ regulatory reforms that focus more attention to systemness, technology-enabled self-care, health and wellbeing and more.

It will be interesting to see how the ACA plays in Campaign 2024 and how moderators for the CNN-hosted debates January 10 in Des Moines and January 21 in New Hampshire address it. In the 2-hour Tuscaloosa debate last Wednesday, it was referenced in response to a question directed to Gov. DeSantis about ‘reforming the system’ 101 minutes into the News Nation broadcast. It’s certain to get more attention going forward and it’s certain to play a more prominent role in the future of the system.

The ACA is back on the radar in U.S. healthcare. Stay tuned.

PS The resignations under pressure of Penn President Elizabeth Magill and Board Chair Scott Bok over inappropriate characterization of Hamas’ genocidal actions toward Jews are not surprising. Her response to Congressional questioning was unfortunate. The eventuality turned in 4 days, sparked by student outrage and adverse media attention that tarnished the reputations of otherwise venerable institutions like Penn, MIT and Harvard.

The lessons for every organization, including the big names in healthcare, are not to be dismissed: Beyond the issues of genocide, our industry is home to a widening number of incendiary issues like Hamas.

They’re increasingly exposed to public smell tests that often lead to more: Workforce strikes. CEO compensation. Fraud and abuse. Tax exemptions and community benefits. Prior authorization and coverage denial. Corporate profit. Patient collection and benevolent use policies. Board independence and competence and many more are ripe for detractors and activist seeking attention. 

Public opinion matters. Reputations matter. Boards of Directors are directly accountable for both.  

How America skimps on healthcare

Posted on by • Posted in ACA, Cost Management, Cost Reduction, Cost Shifting, Delayed Care, Denial, Denial Rates, Employee Benefits, Health Insurance Coverage Adequacy, Health Insurance Denial, High Deductible Health Plans, Labor Spend Management, Medicaid, Medical Loss Ratio (MLR), Medicare, Prior Authorization, Shrinkflation, Utilization Trends • Leave a comment

https://www.linkedin.com/pulse/how-america-skimps-healthcare-robert-pearl-m-d–p1qnc/

Not long ago, I opened a new box of cereal and found a lot fewer flakes than usual. The plastic bag inside was barely three-quarters full.

This wasn’t a manufacturing error. It was an example of shrinkflation.

Following years of escalating prices (to offset higher supply-chain and labor costs), packaged-goods producers began facing customer resistance. So, rather than keep raising prices, big brands started giving Americans fewer ounces of just about everything—from cereal to ice cream to flame-grilled hamburgers—hoping no one would notice.

This kind of covert skimping doesn’t just happen at the grocery store or the drive-thru lane. It’s been present in American healthcare for more than a decade.

What Happened To Healthcare Prices?  

With the passage of the Medicare and Medicaid Act in 1965, healthcare costs began consuming ever-higher percentages of the nation’s gross domestic product.

In 1970, medical spending took up just 6.9% of the U.S. GDP. That number jumped to 8.9% in 1980, 12.1% in 1990, 13.3% in 2000 and 17.2% in 2010.  

This trajectory is normal for industrialized nations. Most countries follow a similar pattern: (1) productivity rises, (2) the total value of goods and services increases, (3) citizens demand better care, newer drugs, and more access to doctors and hospitals, (4) people pay more and more for healthcare.  

But does more expensive care equate to better care and longer life expectancy? It did in the United States from 1970 to 2010. Longevity leapt nearly a decade as healthcare costs rose (as a percentage of GDP).

Then American Healthcare Hit A Ceiling

Beginning in 2010, something unexpected happened. Both of these upward trendlines—healthcare inflation and longevity—flattened.

Spending on medical care still consumes roughly 17% of the U.S. GPD—the same as 2010. Meanwhile, U.S. life expectancy in 2020 (using pre-pandemic data) was 77.3 years—about the same as in 2010 when the number was 78.7 years.

How did these plateaus occur?

Skimping On U.S. Healthcare

With the passage of the Affordable Care Act of 2010, healthcare policy experts hoped expansions in health insurance coverage would lead to better clinical outcomes, resulting in fewer heart attacks, strokes and cancers. Their assumption was that fewer life-threatening medical problems would bring down medical costs.

That’s not what happened. Although the rate of healthcare inflation did, indeed, slow to match GDP growth, the cost decreases weren’t from higher-quality medical care, drug breakthroughs or a healthier citizenry. Instead, it was driven by skimping.

And as a result of skimping, the United States fell far behind its global peers in measures of life expectancy, maternal mortality, infant morality, and deaths from avoidable or treatable conditions.

To illustrate this, here are three ways that skimping reduces medical costs but worsens public health:

1. High-Deductible Health Insurance

In the 20th century, traditional health insurance included two out-of-pocket expenses. Patients paid a modest upfront fee at the point of care (in a doctor’s office or hospital) and then a portion of the medical bill afterward, usually totaling a few hundred dollars.

Both those numbers began skyrocketing around 2010 when employers adopted high-deductible insurance plans to offset the rising cost of insurance premiums (the amount an insurance company charges for coverage). With this new model, workers pay a sizable sum from their own pockets—up to $7,050 for single coverage and $14,100 for families—before any health benefits kick in.

Insurers and businesses argue that high-deductible plans force employees to have more “skin in the game,” incentivizing them to make wiser healthcare choices.

But instead of promoting smarter decisions, these plans have made care so expensive that many patients avoid getting the medical assistance they need. Nearly half of Americans have taken on debt due to medical bills. And 15% of people with employer-sponsored health coverage (23 million people) have seen their health get worse because they’ve delayed or skipped needed care due to costs.

And when it comes to Medicaid, the government-run health program for individuals living in poverty, doctors and hospitals are paid dramatically lower rates than with private insurance.

As a result, even though the nation’s 90 million Medicaid enrollees have health insurance, they find it difficult to access care because an increasing number of physicians won’t accept them as patients.

2. Cost Shifting

Unlike with private insurers, the U.S. government unilaterally sets prices when paying for healthcare. And in doing so, it transfers the financial burden to employers and uninsured patients, which leads to skimping.

To understand how this happens, remember that hospitals pay the same amount for doctors, nurses and medicines, regardless of how much they are paid (by insurers) to care for a patient. If the dollars reimbursed for some patients don’t cover the costs, then other patients are charged more to make up the difference.

Two decades ago, Congress enacted legislation to curb federal spending on healthcare. This led Medicare to drastically reduce how much it pays for inpatient services. Consequently, private insurers and uninsured patients now pay double and sometimes triple Medicare rates for hospital services, according to a Kaiser Family Foundation report.

These higher prices generate heftier out-of-pocket expenses for privately insured individuals and massive bills for the uninsured, forcing millions of Americans to forgo necessary tests and treatments.

3. Delaying, Denying Care

Insurers act as the bridge between those who pay for healthcare (businesses and the government) and those who provide it (doctors and hospitals). To sell coverage, they must design a plan that (a) payers can afford and (b) providers of care will accept.

When healthcare costs surge, insurers must either increase premiums proportionately, which payers find unacceptable, or find ways to lower medical costs. Increasingly, insurers are choosing the latter. And their most common approach to cost reduction is skimping through prior authorization.

Originally promoted as a tool to prevent misuse (or overuse) of medical services and drugs, prior authorization has become an obstacle to delivering excellent medical care. Insurers know that busy doctors will hesitate to recommend costly tests or treatments likely to be challenged. And even when they do, patients weary of the wait will abandon treatment nearly one-third of the time.

This dynamic creates a vicious cycle: costs go down one year, but medical problems worsen the next year, requiring even more skimping the third year.

The Real Cost Of Healthcare Skimping

Federal actuaries project that healthcare expenses will rise another $3 trillion over the next eight years, consuming nearly 20% of the U.S. GDP by 2031.

But given the challenges of ongoing inflation and rapidly rising national debt, it’s more plausible that healthcare’s share of the GDP will remain at around 17%.

This outcome won’t be due to medical advancements or innovative technologies, but rather the result of greater skimping.

For example, consider that Medicare decreased payments to doctors 2% this year with another 3.3% cut proposed for 2024. And this year, more than 10 million low-income Americans have lost Medicaid coverage as states continue rolling back eligibility following the pandemic. And insurers are increasingly using AI to automate denials for payment. 

Currently, the competitive job market has business leaders leery of cutting employee health benefits. But as the economy shifts, employees should anticipate paying even more for their healthcare.

The truth is that our healthcare system is grossly inefficient and financially unsustainable. Until someone or something disrupts that system, replacing it with a more effective alternative, we will see more and more skimping as our nation struggles to restrain medical costs.

And that will be dangerous for America’s health.

Health “insurtechs” struggling to stay relevant

Posted on by • Posted in Accountable Care Organization (ACO), Disruption, Disruptive Technology, Financial Viability, Financially Distressed, Health Insurance Industry, Initial Public Offering (IPO), Innovation, Insurtechs, Medical Loss Ratio (MLR), Medicare Advantage, Operating Expenses, Operating Income, Operating Margin, Operating Performance • Leave a comment

https://mailchi.mp/9fd97f114e7a/the-weekly-gist-october-6-2023?e=d1e747d2d8

“Insurtechs” Clover Health, Oscar Health, and Bright Health all went public in the midst of the hot equity market of 2021. Investors were excited by the fast growth of these health insurer startups, and their potential to revolutionize an industry dominated by a few large players.

However, the hype has dissipated as financial performance has deteriorated. After growing at all costs during a period of low interest rates, changing market conditions directed investors to demand a pivot to profitability, which the companies have struggled to deliver—two years later, none of the three has turned a profit. 

Oscar and Bright have cut back their market presence significantly, while Clover has mostly carried on while sustaining high losses. In the last two years, only Oscar has posted a medical loss ratio in line with other major payers, who meanwhile are reporting expectation-beating profits. While Oscar has shown signs of righting the ship since the appointment of former Aetna CEO Mark Bertolini, 

the future of these small insurers remains uncertain. As their losses mount and they exit markets, they may become less desirable as acquisition targets for large payers.