Wolfe Research Senior Healthcare Analyst Justin Lake hosted a webcast to update 2020 numbers and price targets, discuss thoughts on initial 2020 guides, analyze company-specific headwinds and tailwinds, identify uncertainties and swing factors, and look at what to expect from management on 3Q call.
Search Coverage List, Models & Reports
Search Results1-10 out of 292
YTD all MCOs under our coverage have met or beat Consensus EPS expectations although MLR misses in 2Q at several plans have raised concerns. While Medicaid remains a pressure point, we are not overly concerned on cost trend which we believe is likely up modestly YoY but manageable per our NFP plan checks. As such, our focus shifts to 2020 going into 3Q where most companies are expected to provide early color on EPS growth for next year. Within this note, we attempt to identify and quantify key 2020 tailwinds / headwinds for each MCO, provide an estimated initial guidance # for 2020, highlight where our estimates are relative to current Consensus and latest mgmt. commentary, and what color on 2020 to expect from mgmt. on 3Q call based on previous year’s. Finally, we are revising our CI #s higher and ANTM//UNH #s lower for 2020 as discussed in detail later in the slides beginning on page 3 and laid out on exhibit 1 on page 2.
Following the third Democratic Primary Debate we have seen two national polls that both show Biden maintains his lead as Warren continues to build momentum. Morning Consult’s weekly poll update on Monday (09/16/19) shows Biden (32%) maintains a healthy lead vs. Sanders (20%) and Warren (18%) importantly though she has gained 5 points since the July debate while Biden/Sanders have remained flat. Another poll released earlier today by NBC/WSJ shows Biden (31%, +5% since July) and Warren (25%, +6%) distancing themselves from Bernie (14%, +1%) and the rest of the pack. Our discussions with investors are generally focused upon Biden vs Warren with stocks likely to continue being driven by this dynamic through year end.
In September Individual Med Adv enrollment increased 7.8% y/y and Group Med Adv enrollment increased 7.5% y/y, producing total y/y Med Adv growth of 7.7% or 8.5% ex. MN market which declined y/y due to the ongoing cost plan conversion. On an absolute basis total Med Adv enrollment increased by 1.63M members y/y and 1.47M YTD with our coverage universe growing by 1.81M and 1.61M respectively (taking share at ~110% of industry growth over both time periods). See Page 2 for data by plan and email us for the tracking spreadsheet.
Different from the first and second debates, prior to the third the candidates had already defined their stance on healthcare reform. Once again Biden and Sanders were the most forthcoming with details on their healthcare plans while Harris and Warren stuck to high level talking points. Notably, Warren avoided explicit questions direct at her on the role of private insurers and raising taxes on the middle class in her version of M4All. The rest of the candidates advocated for their version of M4All / Public Option with Yang the only one suggesting a change to how providers are paid – see our summary of each candidate’s comments on Page 3. 11 candidates have qualified for next months debate which may get more granular on potential disruptive impacts of single payer (hospital closures, people losing coverage they like, etc) will move to the fore.
In August, the Trump Administration announced a final rule that will now include Medicaid status as a determinant of whether an alien applying for admission or adjustment of status (to Lawful Permanent Resident) is financially dependent on the government for subsistence and should be inadmissible to the U.S. Simply put being on Medicaid will become a factor in citizenship decisions, likely discouraging some current non-lawful permanent resident Medicaid enrollees from continuing their enrollment. We note that this does not apply to individuals who already obtained a lawful permanent resident status (green card holders), but only impacts “aliens seeking to adjust their status to that of lawful permanent residents from within the United States, and aliens within the United States who hold a nonimmigrant visa and seek to extend their stay in the same nonimmigrant classification or to change their status to a different nonimmigrant classification.”
– The latest published Medicaid & CHIP enrollment data (June 2019) show continued pressure in the overall enrollment throughout the U.S. See links to our slides / webcast from July where we discuss the trend. The overall enrollment declined 2.1% y/y in June vs. -1.7% in April / May - see page 2 for more details. We note that y/y decline in 2Q (as of end of June) stands at -2.1% which is a slight acceleration vs. the 1Q y/y decline of 1.8% (as of end of March). Plans continue to see enrollment pressure at the state level – here we highlight some recent articles pointing to continued pressure in OH, MO, LA and MA. Over time we expect states to increase rates to offset deteriorating risk pools, but until the enrollment declines begin to stabilize this will likely be a problem area for MCOs into 2H’19.
The IRS released their final estimate for the 2020 HIF yesterday of $15.5B which translates to a 4.2% CAGR off the $14.3B fee in 2018. The calculation methodology is as follows, “For 2020, the premium adjustment percentage is calculated as the difference between the percentage (if any) by which the most recent National Health Expenditure Accounts (NHEA) projection of per enrollee premiums for private health insurance (excluding Medigap and property and casualty insurance) for the preceding calendar year, 2019 ($6,436), exceeds the most recent NHEA estimate of per enrollee premiums for private health insurance (excluding Medigap and property and casualty insurance) for 2017 ($5,929)”. As for which companies pay the HIF, the IRS will proportionally allocation the fee between US health insurers covering “health risks” based on their net premium in 2019, “The fee is a fixed amount (Applicable Amount) allocated among all covered entities in proportion to their relative market share as determined by each entity’s net premiums written for the data year, which is the year immediately preceding the year in which the fee is paid (the year in which the fee is paid is the fee year)”.
The North Carolina Department of Health and Human Services (DHHS) announced today (9/3/19) it would extend the open enrollment period for Medicaid beneficiaries and move to a statewide transition to managed care on 2/1/20 instead of splitting the transition into 2 phases. Recall Regions 2 and 4 were originally scheduled to launch in November 2019 (ANTM, UNH, WCG, and AmeriHealth Caritas are winners here) with the remaining Regions 1, 3, and 5 to launch in February 2020. We would expect a very modest impact to revenue in Q4 for winners along with slight improvement in MLRs given plans typically lose money early on in new markets.
On Monday last week (08/26) MCOs notably underperformed the S&P 500 likely driven by Monmouth University polling data showing a virtual three-way tie among Sanders (20%), Warren (20%), and Biden (19%). While this is one poll only and other polls released after showed return to norm, we are not entirely surprised at the recent volatility as our analysis of prior Presidential primaries indicated there likely won’t be clarity on who the Democratic nominee will be until early 2020 – see our webcast / slides from earlier this year for more details. From a valuation standpoint MCOs are as discounted as they have been since the April selloff and are at or near 1/3/5-year relative NTM PE lows vs. the S&P 500, and while we wouldn’t be surprised to see a bounce in the stocks we maintain our Market Weight rating for the sector as political uncertainty is likely to remain thru at least year end.
- 1 of 30
- next →