According to Bloomberg, UNH will be losing a portion of Verizon group retiree members to CVS-AET and the Alabama Public Education retiree plan to HUM starting in 2020. While Verizon is sticking with UNH for retiree benefits in its Eastern region, its Western region will be transitioning to CVS. Per the article, there were nearly 87k members (including retiree + spouses) in the Alabama plan as of 09/30/17 and Verizon has a total of 200k retirees. In our follow-call with the company, UNH didn’t provide us with a specific membership # but indicated these losses combined with some wins will keep their Group Med Adv membership approximately flat (fully implied in 2020 guide) – with strong growth still expected in Individual. The co. has not provided commentary on 2020 Individual Med Adv but did note that it feels “extremely well positioned” for the selling season and our Med Adv benefit analysis would agree with our 2020 est. of Individual growth at 10%.
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According to a press release from the Louisiana Department of Health on Monday (10/15/19), LA “will resume auto-closures for approximately 82,000 Medicaid members”, many of which are still likely eligible and could lose coverage if they don’t respond timely. The department is also starting “a new outreach effort that will include calling Medicaid members who have not yet completed their annual renewal and are at risk of losing their healthcare coverage.” Based on 2Q stat filings data, there were 1.44M members in the state so up to ~5.7% of enrollment could get dropped from the rolls if they fail to renew or meet eligibility requirements. Phone calls from health plans have begun Monday and calls directly from LA Medicaid will begin in November. For some background, the latest July Medicaid data from CMS shows LA Medicaid enrollment has declined 6.0% y/y – the 3rd steepest decline on relative basis out of 50 states and D.C (only better than WY down 9.7% and MO 10.9%). We note the current market leader in LA is CNC with 452k members representing 31% market share, followed by UNH (418k / 29%), ANTM (244k / 17%), Amerihealth Caritas (206k / 14%), and AET (120k / 8%). In our view, resumed auto-closure by the state poses a risk of further pressure on enrollment / risk pool for MCOs but this could be mitigated by increasingly proactive outreach measures by both plans and the state.
Today (10/15/19) the PA Department of Human Services released its Medicaid Managed Care re-procurement RFP for the PA Health Choices program. This is the third attempt by the state in last 4 years to re-procure this program. The first rebid happened in 2016 but implementation of awards was blocked by a preliminary injunction granted by the Commonwealth Court of PA to AET who lost 4 out of 5 zones (UNH won all 5, CNC won 3) – forcing the DHS to do another procurement. The second happened in 2017 but awards were also ultimately negated as AET and UNH who lost all zones this time successfully protested (CNC again was a winner of the rebid). In 2nd rebid, other bidders besides AET, CNC, and UNH included NFP plans AmeriHealth Caritas, Gateway, Geisinger, Health Partners, and UPMC.
Wolfe Research Senior Healthcare Analyst Justin Lake hosted a webcast to discuss thoughts on Q3 MLR for MCOs, quantifying impact of 3Q calendar shift on MLR, quantifying HIF headwind for UNH into 2020, 2020 Med Adv competitive positioning, and why we have questions on the CMS Planfinder cost estimates.
The HIF resumption in 2020 is set to put MCOs under a tougher operating environment than 2019 although a solid Med Adv rate environment should provide some cushion to benefits and plan economics. Our usual work looking at Medicare.gov Plan Finder appeared misleading and we spent a week trying to figure out the issues (see more beginning on slide 19). In the meantime, we instead dug into specific benefit changes YoY by MCO to better understand 2020 setups for margins / competitive positioning. Please see below for our key takeaways and slides starting on page 3 for further details.
This afternoon (10/11/19) federal judge George B. Daniels from the New York Southern District Court granted a nationwide injunction enjoining the federal government from enforcing the public charge rule scheduled to go in to effect next Tuesday, October 15th. The judge also granted “a stay postponing the effective of the Rule pending a final ruling on the merits, or further order of the Court.” Recall that in August, the Trump Administration announced a final Public Charge rule that will now include Medicaid status as a determinant of whether an alien applying for admission or adjustment of status (i.e. obtaining green card) is financially dependent on the government for subsistence and should be inadmissible to the country - simply put being on Medicaid will become a factor in green card decision. This is discouraging some current non-permanent resident Medicaid enrollees from continuing their enrollment.
2021 Medicare Advantage Star Ratings – are expected to be released late Wednesday evening by CMS. The ratings will be posted here. While the ratings will be the first look at 2021 Stars (based on 2018 performance data), we believe plans have known the result for weeks, as highlighted in 2016 when HUM issued a press release discussing their Star Ratings decline before CMS posted results. With ratings difficult to predict, we continue to default to the view that MCOs with >75% of membership in plans with 4 Star ratings or better (AET, CI, and HUM) are mathematically more likely to have greater potential downside than upside especially with contract density driven by prior year crosswalking and CMS’s moderation of plans ability to influence Star ratings via crosswalking.
Warren’s momentum both nationally and in early Primary state polls and the recently announced impeachment of President Trump continues to weigh on MCO sentiment. Investor conversations continue to focus upon potential outcomes including political, legislative and regulatory going into and post November 2020 elections. With Trump impeachment discussions and Bernie Sanders health issues, coupled with Warren’s continued polling momentum it is likely that uncertainty will remain for the next several months into year-end.
New timelines were finally released for the delayed TX Medicaid contracts that were previous expected at the end of July. The state now plans to announce RFP winners for STAR+PLUS and Dental in October, while CHIP is still expected in December. Plans will be notified of preliminary awards and sign final contracts over a 1- to 2-week period before the state announces the final awards. We expect to know when the plans find out about preliminary awards although we will not know which plans receive awards or for which regions until the state officially announces.
The Senate Finance Committee released the text of its drug pricing bill yesterday and our first glance of the bill does not suggest any major surprises. As initially intended, the bill put more focused on policies to keep drug pricing low and lower out of pocket costs for patients but did not include a lot of PBM-focused policies because the committee originally “assumed the administration was moving ahead with its plan to overhaul the drug rebate system”, according to Politico. The bill includes policies to limit spread pricing in Medicaid and requires more transparency from PBMs regarding service fees but these were all discussed previously – more below. In addition, the bill focuses on Medicare and Medicaid and doesn’t include policies for commercial although we expect investors will remain concerned around commercial eventually moving to similar policy/disclosure over time.
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