Based on FY21 appropriation bill HB 793 from the Governor’s Office of Planning and Budget, Georgia will put in place a retrospective rate adjustment (to 07/01/19) and risk corridors for Medicaid MCOs. These actions are projected to generate $102M in savings or 2.3% of 2019 premiums of $4.3B – see exhibit 1 on page 2. Per our review of the budget reduction proposal from the GA Department of Community Health (DCH), which runs the state’s Medicaid program, the risk corridors will include a min MLR at 85% and a max MLR at 91%. We note this will be the first time GA implement a min MLR or risk corridor for the Medicaid population. We see risk corridors as a more reasonable and balanced solution vs. rate cuts (as seen in CA / OH) in terms of states being able to recapture COVID-19 related cost savings in Medicaid and expect both the plans and investors will view these types of corridors as a positive path for states to take as we move into the 2021 rate cycle – see our recent webcast / slides on state budgets and plan exposure / rate setting timing by state for more detail.
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MCO Election Impact Model - we have analyzed potential Democratic outcomes including, coverage expansion, an increase in exchange tax credits, as well as public option.
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.
Earlier this week the CA legislature passed budget for the next fiscal year starting on 07/01. According to this legislative plan, CA lawmakers have approved all 3 budget proposals from Governor Newsom in May that would reduce reimbursement rates for Medicaid MCOs: 1) 1.5% rate cut for the period 07/01/19 thru 12/31/20, 2) implementation of new managed care efficiency adjustments, and 3) reduction of underwriting margin from 2.0% to 1.5% in 2021 rating period. See exhibit 1 below for language. The Governor has not signed the legislature budget and both sides are still negotiating to finalize the budget by 07/01 – so there is the possibility this doesn’t go thru. That said, given the cuts were originally proposed by the Governor we see it as likely that they are eventually passed. For more details on CA’s rate adjustment proposals, see key takeaways from our recent webcast on the topic.
The West Virginia Department of Administration (DOA) recently awarded contracts to ANTM, CVS-AET, and The Health Plan to serve the state’s Medicaid Managed Care program for the TANF/CHIP & Expansion population. All 3 winners were incumbents and there were no other bidders. Implementation is scheduled for 07/01/20 w/ the new contracts running for 1 year w/ 3 optional 1-year renewals. The RFP did require cost bids, which represent 30% of the bid score although final rates will be subject to federal review and approval. Beginning in early 2021, the program will be expanded to include population enrolled in the WV Children’s Health Insurance Program (WVCHIP). Per RFP document, the state expects WVCHIP enrollment to be about 21.6k, which at $150 PMPM would imply a ~$40M revenue opportunity
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.
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