CNC and ANTM have joined other MCOs in waiving of member costs for all COVID-19 related treatments. CNC and ANTM will now cover member costs for all risk members and ANTM specified the co. will reimburse providers at their in-network rates or Medicare rates. With CNC and ANTM’s announcements, all MCOs under our coverage universe are now waiving treatment cost sharing for COVID-19 except MOH, although we note that Medicaid plans are generally unaffected given lack of member co-pays for Medicaid. As we highlighted in our previous note, our COVID-19 model est. impact of the waiver at <1% of EPS for all MCOs ex-HUM which is ~2% of EPS for each 1% of membership testing positive before any deferred utilization offset - we checked in w/NFP plans who indicate our est. are likely conservative. Our updated interactive COVID-19 impact model now includes a toggle for the member cost waiver as well as impact of testing costs to plans and the ability to choose % of population being tested overall and those testing positive for COVID-19 – email us for a copy of our model.
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Thus far, CI, CVS, HUM, and UNH have announced a waiver of member costs for COVID-19 related treatments. UNH and HUM appear to cover member costs for all risk members whether treatment is delivered by in-network or out-of-network providers while CI specified the co. will reimburse providers at CI’s in-network rates or Medicare rates. Meanwhile, CVS will waive member costs for Commercial members only for treatment at in-network facilities. While ANTM, MOH and CNC have announced expanded access to care for COVID-19, including access to testing, medication, telehealth / virtual care etc., they haven’t yet announced a broader out-of-pocket waiver at this point. Our COVID-19 Model (email for a copy) est. impact of co-sharing at <1% of EPS for all MCOs ex-HUM which is ~2% of EPS for each 1% of membership testing positive before any deferred utilization offset – details on pg. 2 and we checked in w/NFP plans who indicate our est. are likely conservative.
While our earlier checks indicated it was unclear whether MA plans would be required to pay the 20% add-on payments included in the final $2T stimulus bill, if passed, we are now hearing from multiple plans that the payments will be applied to MA rates as well. We are now incorporating the payments into our base case for inpatient admissions which increases treatment costs by 20% for Medicare members. We expect plans will see some offsetting higher revenues (not in our model) from higher risk scores for these patients as well.
Based on the learnings from our conversations w/ providers and payors, we have put together an interactive COVID-19 impact analysis worksheet to allow investors to input key assumptions and assess potential MLR / EPS impact from COVID-19 and deferred utilization on MCOs.
We initially used a typical flu season costs as a starting point to est. potential COVID-19 costs and discussed the potential offset of likely but unknown quantity of deferred utilization as providers across the country shift resources to COVID-19 patients and defer many elective visits and surgeries which we estimate at nearly 50% of all HC spending. We now have early data points from NFP plans seeing a decline in claims in the 20% range due to deferred utilization and we compare this benefit to potential COVID-19 cost by co. and come to the conclusion that a 20% decline in claims trend per week (over however many weeks this lasts) would work to offset ~0.4% to 0.7% infection rate across the risk membership at each MCO, illustrating the NT cushion to COVID-19 costs across the group vs. the trajectory of infection across the country.
As the Fed made drastic cuts to the federal funds rates (150bps in total) this month, we attempt to estimate the potential impact of lower rates to plan earnings in 2020. In the near term the greatest impact would be from lower rates on short-term assets, specifically cash and cash equivalents (C&CE). To estimate exposure we use the current rate on the 1-month T-bill of 1bps vs. the average 2019 yield of 212bps and the average 2020 yield of 155bps YTD before Fed cut rates. Assuming ST rates stay at very low levels thru the year, the 2020 average would be about 20bps, implying a 135bps decline vs. the avg. pre-rate cut. While we certainly don’t expect this low a yield over the LT, we use this change in rates as a proxy for lower yields on average C&CE balances in 2019 to ascertain the potential decline in inv income across the MCO space.
The White House and Senate leaders reached an agreement earlier today on a $2T coronavirus spending bill. According to the outline of the bill from Senate Minority leader Chuck Schumer, the package includes $100B in emergency funding to hospitals without providing specifics on how the fund should be used. While we don’t think anyone has seen the full text of the bill yet, there is discussion on whether the final bill includes the risk corridor program for Medicare Advantage that was in the original House bill introduced earlier this week - see exhibit 1 on page 2 for legislative language. At this moment (and subject to change), our DC checks are somewhat skeptical that the language made the final legislation but again it is impossible to know for sure either way given lack of visibility into the final language.
According to our latest conversation with our industry contracts, the Texas Health and Human Services Commission (HHSC) has canceled both the STAR+ awards and the pending STAR/CHIP solicitation this morning. Recall in December the HHSC finalized preliminary awards from October for the STAR+ program, which is the Medicaid managed care program for the ABD / LTSS population worth ~$9.7B in total revenue. Our analysis then indicated CNC would be the biggest winner (potentially adding ~1% to EPS power) while MOH would see the largest negative impact on EPS at 3.2% by our est – see our note for more details. It is unclear what drove the HHSC’s decision to cancel both and when new re-procurements will happen. We note several bidders incl. ANTM and MOH have protested the STAR+ awards. See Exhibits 1-9 for our earlier estimates of enrollment and earnings impact from STAR+ awards and exposure to STAR / CHIP.
Based on the learnings from our conversations w/ providers and payors, we have put together an interactive COVID-19 impact analysis worksheet to allow investors to input key assumptions and assess potential earnings at risk for MCOs and Hospitals.
Senate Republicans’ new $1.6 trillion COVID-19 stimulus package now includes a $75B bailout for hospitals; a freeze on the 2% Medicare Sequestration cut; 20% Medicare add-on payments for COVID-19 related admissions; as well as a delay in Medicaid DSH cut – see exhibit 4-7 on pg. 5-8 and link to the bill here. The sequestration freeze would take effect on May 1 thru Dec 31, 2020 and this applies to all Medicare payments, including MCOs via Med Adv and PDP. We expect this would boost Providers’ EBITDA in the 2%-3% range for the year – see exhibit 1 on pg. 3.
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