Wolfe Research Senior Healthcare Analyst Justin Lake hosted a webcast to discuss analyzing WA exchanges initial rate filings for winners/losers, thoughts on MOH exchanges profitability, a preview of setups in key MOH exchanges states, and read-throughs to CNC.
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We est. exchanges account for 24% of EPS for MOH and 35% for CNC in 2019. Recall in 2018 MOH lost 55% of its exchanges membership post significant rate increases / market exits and in 2019 the company has continued to see a decline. Meanwhile over the same period CNC has grown significantly and dominated from a profitability and market share perspective. Now going into 2020 MOH is attempting to gain enough membership to offset margin moderation to more sustainable levels as discussed at investor day – effectively reinvesting margin outperformance and cost cutting into rates. The potential change to competitive dynamics coupled with the debate around sustainability of exchange margins / profitability overall are clearly key to both CNC and MOH. To develop an early view into 2020 exchange dynamics we analyzed both companies initial rate filings in WA which just recently released detailed rates. We will host a webcast on Wed 6/26 at 10:30am ET to discuss – slides start on pg. 3 and invite should be in your inbox last night at ~7pm ET.
According to the WSJ, Trump plans to issue an executive order today directing federal agencies to initiate regulations that require HC payers and providers to reveal the details of their pricing contracts. As expected, industry groups, including both payors and providers, are pushing back claiming transparency on discounts will hurt competition and ultimately cause costs to go up and the article notes that it is “unclear how aggressive the order will be because of the pushback from industry”. At the end of the day the devil will be in the details here in terms of what the providers/plans are forced to disclose and the ability of members to use it to make better/lower cost consumption decisions over time.
This Wednesday (06/26/19) Warren, O’Rourke and Booker will face off at the first 2020 democratic primary debate along with seven others, followed by Biden, Sanders, Harris, Buttigieg and six others at a second debate the following night – see more on page 2. Healthcare will undoubtably be one of the key topics in the upcoming debates as the candidates split on whether they want a system that builds on the existing employer-based system or replace it entirely with a single-payer structure – see page 5 for the stance of the current lead Democratic candidates. While the recent polls have been relatively stable, look for potential volatility into the first Democratic debates as Biden is expected to be the primary target of his fellow Democrat candidates – given the current solid lead and his more moderate position on certain topics, including healthcare. As we highlighted in our previous work and illustrated on page 8, history would argue for volatility in the polls before all is said and done despite Biden’s large lead. That said we continue to see little chance of significant change, instead the concern is simply the 12-18 month timeline of uncertainty before elections.
In June Individual Med Adv enrollment increased 7.5% y/y and Group Med Adv enrollment increased 8.5% y/y, producing total y/y Med Adv growth of 7.7% – 8.4% ex. MN market which declined y/y due to the ongoing cost plan conversion. ~65.0% of total Med Adv enrollment of 22.5M lives were in our covered co’s vs 61.1% of 20.9M lives a year ago. See Page 2 for data by plan and email us for tracking spreadsheet.
On Friday (06/14/19) CNC hosted its June Investor Day in New York. CNC reviewed the company’s growth and financial track record, provided updates on WCG deal, delineated its 2020 strategic vision to be the leader in govt-sponsored health care and its heavy focus on advancing technology capabilities. In addition the company discussed the current political / regulatory uncertainty and potential impact on their business. Overall there wasn’t a ton new here, w/$79B+ rev guide very much in line w/S4. While it is hard to get excited about stock in NT given numerous overhangs and history of “deal stocks” not working until deal close the valuation is compelling assuming post deal 2021 EPS in the $5.55-$5.75 range leaving CNC as the cheapest pure-play MCO off forward #s.
HHS’s proposed rule to eliminate safe harbor protection for drug rebates from manufacturers to PBMs for Part D / Managed Medicaid and replace them w/ POS discounts has reached the White House's Office of Management and Budget yesterday (06/10) for final review.
Since entering the race on April 25, Biden has rapidly solidified his status as the front-runner for the 2020 Democratic Presidential nomination, with a lead of 16.8 points (vs. 18.4p 1-week ago / 17p 2-weeks ago) according to the RCP’s national polls – see slide 3. There was no noticeable change in the polls over the past two weeks with Sanders remaining a distant second and Warren / Harris sitting in third / fourth. While the polls have been relatively stable, look for potential volatility into the first Democratic debates scheduled for June 26-27 and July 30-31, respectively – we discuss the change in the debate rules this year on page 2.
The Kaiser Family Foundation recently published two interesting analyses on how the Medicare Advantage landscape has evolved over time from different angles. One historical analysis of 2010-2016 data is particularly interesting, illustrating that seniors new to Med Adv are still choosing MA at a rate below the overall industry penetration. While increasing materially over this period the analysis shows only 29% of seniors new to Medicare choose MA plans in 2016 vs. 31% industry penetration. This is counter-intuitive to many given one would expect younger seniors to be more familiar with managed care in general and therefore more open to the benefits of Med Adv. However, we would note that there are a couple of reasons why this might be the case: (1) the only time a senior can be assured of getting Med Supp w/o underwriting and at best price is when they age in, likely leaving more seniors choosing Med Supp right out of the gate and (2) it is possible that seniors
This morning (6/6/2019) ANTM announced it has entered into definitive agreement to acquire Beacon Health Options – the largest independently held behavioral provider in the country. Beacon currently serves 36M lives in all 50 states with ~3M under comprehensive risk-based behavioral program. The acquisition reflects ANTM’s continued strategy to bulk up its services capabilities which currently include IngenioRx (PBM), AIM Specialty Health (chronic condition mgmt.), Aspire (palliative & end-of-life care), and Caremore (provider network support) in order to enhance its integrated offerings. At the same time the strategy presents significant opportunities to sell to other health plans such as Blues plans. Beacon will be integrated into ANTM’s Diversified Business Group (DBG) upon completion of the deal which is currently expected in 4Q19.
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