MCO Election Impact Model - we have analyzed potential Democratic outcomes including, coverage expansion, an increase in exchange tax credits, as well as public option.
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MCO stocks have typically had a hard time showing positive returns going into presidential elections. MCOs (incl. ANTM, CNC, HUM and UNH) have struggled recently, underperforming the S&P 500 by ~6.5% since 6/1, and we believe this underperformance has been completely driven by the increasing potential for a Biden win in November coupled with a Democratic Congressional sweep. That said, we expect further swings in sentiment / odds between now and Nov and while uncertainty remains, the breadth of outcomes is much less severe than those contemplated under Sanders/Warren. Overall, we have analyzed potential Democratic outcomes including coverage expansion, higher corp. tax rates and a significant amount of detail around public option, with the combination of current valuations coupled with our est. of manageable impact to earnings in most scenarios leaves a compelling MCO risk / reward setup.
According to the guidance released by the Trump administration yesterday, insurers are not required to cover potentially repeated COVID-19 screening tests that employers may mandate as they bring employees back to work. Initial CMS guidance has indicated testing should be covered by insurers when medically appropriate but there was some uncertainty around whether repeated surveillance testing would fall into that category. Our conversations with industry participants indicated a concern here given significant potential costs of surveillance testing, with a study conducted by AHIP / Wakely Consulting Group finding testing could cost between $6B-$25B annually, and antibody testing could cost $5B-$19B – we note that the estimates include costs for medical necessary tests, public health tests, as well as occupation health tests. The new guidance clarified that screening for general workplace health and safety will not be considered medically necessary and insurers will not be required to cover the costs – see exhibit 1 on page 2 for exact verbiage. Beyond the obvious cost concerns, we would read this as positive for MCOs in terms of a reasonable regulatory environment around COVID-19 in general as this is clearly going to be a area of focus for some time to come.
Since 05/11, Strata Decision Technology, a healthcare focused financial analysis & analytics enterprise software provider, has published a report that tracks volumes at 243 hospitals across the country. Strata recently changed their report to a bi-weekly (every second week) schedule to allow more data to accumulate in their reported trends. The latest report shows a continued rebound in outpatient volume thru the middle of June with the last 14-day volume, as of June 13th, up YoY by 7.6% and the past 30-days up 2.5% compared to 2019 levels.
In June report Individual Med Adv enrollment increased 10.5% y/y and Group Med Adv enrollment increased 4.8% y/y, producing total y/y Med Adv growth of 9.3%. On an absolute basis total Med Adv enrollment increased by 2.09M members y/y and 1.61M YTD w/our coverage taking share as responsible for ~79% of industry growth over both time periods vs. current overall share of 66.0% (up 1.1% y/y). See Page 2 for data by plan and email us for our tracking spreadsheet. To be clear, June report reflects “enrollment as of the June 1, 2020 payment. The payment reflects enrollments accepted through May 8, 2020.”
At a competitor conference, Karen Lynch, President of Aetna, noted “the MLR for second quarter to be at its lowest that we've seen”, driven by lower utilization of down ~30% in April and ~-25% in May y/y – see exhibit 1 on page 2. We note that, since 2008, the lowest 2Q MLR of the Aetna business was 79.7% (2Q18 / 2Q11) and the lowest quarterly MLR was 78.9% at 3Q11. CVS is seeing pre-authorizations of electives coming back with certain states only down ~13% y/y in May vs. -50% in April. Moreover, in some states that opened earlier, the avg. utilization is actually higher than it was in Jan / Feb. Meanwhile, overall inpatient days / dental / lab and radiology were still down 30% / 60% / 40%.
Since 05/11, Strata Decision Technology, a healthcare focused financial analysis & analytics enterprise software provider, has been publishing a weekly report that tracks volumes at 212 hospitals across the country. The latest report shows a continued rebound in outpatient volume thru the end of May with the last 7-day volume, as of May 30th, down YoY by ~1.5% vs. ~4% in the prior week. Strata also reports continued modest improvement in ER visits / inpatient admits / observation visits YoY at a reported -32% / -14% / -18% over the latest 7-day period vs. the prior week of -36% / -19% / -23% - see exhibit 1 on page 2. Additionally, IQVIA’s recent research shows that elective procedures remain at half of their pre-COVID volumes - more below. See our recent overview of utilization data points from last week here as well as our Hospital Recession Slides / Webcast for more details on our providers views. Please reach out to us for a copy of the model itself.
States have seen lost revenues due to COVID-19, leaving budget pressures across the country. In terms of Medicaid, the focus thus far has been on states looking to capture MCO spending declines via rate cuts as proposed in CA/OH – see our slides / key takeaways from our recent webcast on the topic. While we expect these cuts to be manageable in 2020 due to lower utilization, the key question here is the breadth and magnitude of cuts for 2021 and whether the positives of membership additions and accompanying SG&A leverage and risk pool improvement will be significant enough to offset potential margin pressures.
Since 05/11, Strata Decision Technology, a healthcare focused financial analysis & analytics enterprise software provider, has been publishing a weekly report that tracks volumes at 212 hospitals across the country. The latest report shows a continued rebound in outpatient volume in May with the last 7-day volume, as of May 23rd, only off 2019 volumes by ~4% vs. -14% in the prior week. At the same time, ER visits / inpatient admits / observations visits improved modestly y/y at a reported -36% / -20% / -23% over the latest 7-day period vs. the prior week of -42% / -25% / -30%. see exhibits 2 on page 3. Additional research from TransUnion Healthcare also show similar trends in volume, but further notes that reengagement behavior has differed across age groups. See our recent overview of utilization data points from last week here as well as our Hospital Recession Slides / Webcast for more details on our providers views. Please reach out to us for a copy of the model itself.
States have been hit hard with spending needs by COVID-19 as well as a drain on sources of revs from lost sales and income taxes. Due to the pressure / deficit in budget, some states, including CA, OH, and NY, have already made or planned Medicaid rate cuts – see our slides / key takeaways from our recent webcast with 2 Medicaid consultants from HMA discussing the budget crises in CA and OH and related Medicaid rate cuts. The key questions here are how widely these cuts be adopted for 2020/2021 and whether the positives of greater membership and better risk pool could be significant enough to offset. Overall, state budget concerns and potential impact to rates / plan margins will remain an uncertainty for Medicaid MCOs vs. the clear positives of enrollment gains, accompanying SG&A leverage and improved risk pool.
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