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Becker’s Healthcare Podcast
ACA Rate Hikes, Payer Losses, and UnitedHealth’s Expanding Empire with Jakob Emerson
00:15:07
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- [00:01]
A
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- [00:38]
B
This is Scott Becker with the Becker's Healthcare Podcast. Thrilled today to visit with Jacob Emerson. Jacob covers probably the most interesting area of healthcare right now, at least one of them. He covers the payer area, and it's just been a year where the payers have been under fire, but they still are very dominant. Four of the largest companies in America are payers UnitedHealthcare, CVS, Aetna, Cigna, and Elevance. These are four of the largest by revenues of all companies in America. So they they wield serious, serious power and have great economic power. Jacob, what are you watching currently in the payer world?
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C
Yeah, hey Scott, it's great to talk with you and I appreciate that intro in terms of what's been going on with some of these insurers over the last few months, I think a lot of our listeners probably know that, you know, a lot of them have cut their earnings guidance for the full year. Most of the major insurers have at this point. And really what that reflects is just a lot of different issues pretty much across every market at this point in terms of commercial Medicaid, aca, Medicare Advantage. And one area that I wanted to specifically discuss because, you know, this is really going to start affecting people next year. And this all kind of ties back to what we've been seeing at the federal level in terms of the one big beautiful Bill act, or the lack thereof in terms of policy that was implemented is we're going to see very large rate increases for ACA plans as we head into next year. And we know this because the payers have to file their proposed rate notices with the states to get approved or rejected by the regulators in each state. And we're seeing the largest proposals since 2018. And there's a few reasons for that, but one of the biggest reasons is because the enhanced premium subsidies are expiring. So they expect, you know, that the market to get worse in terms of healthier members leaving the market. So it's going to be more expensive to cover their care. GLP1 costs continue to go up. So, so next year, you know, we can dive into that in just a second. But you know, we're starting to see ACA costs rise. And then another thing that I wanted to touch on is a really interesting report that was put out regarding UnitedHealth Group's corporate structure and their acquis over the last decade or so. And we've never seen any report like this before because, you know, as you know, UnitedHealth is a very secretive company. They're very good at, I don't want to say hiding their acquisitions, but making it very difficult to find out exactly how they're structured, what they own and all that good stuff. And, and this report basically dug into all their filings with states over the last decade or so and found that the company is made up of over 2700 different subsidiaries across a vast range of, of some not even in healthcare and a lot not even in the, in the United States. So just a really interesting report on just how large United has grown over the last decade.
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B
I mean that's really amazing. 2,700 different subsidiaries is really an amazing, amazing number. And what a complicated corporate structure. And I don't know that it's any purposeful lack of transparency. Just there's a lot of things to manage in a 400 billion plus company. It's the fourth largest by revenues in the United States. Really amazing. Jake, if you're watching that, in all the companies that have pulled earnings guidance, centene went down 50% the year to date. The other day I saw that elevance, which was the former in the Blue cross dropped about 12 and 14% in one day. Oscar Health, that has avoided a lot of the challenges that the other managed care companies have been having. Again also caught that same cold and went down 12% or so the other day. What else are you seeing out there? What else are you watching in the payer universe? Sure.
- [04:34]
C
I mean, and I, I think Oscar, it really points to what I was talking about in terms of the, the ACA increases and the fact that the enhanced subsidies are not going to be extended. We're almost totally positive about that. And Oscar's business is focused on the aca. So they basically received some, some external independent data from a consulting firm telling them that by the end of the year they're going to be losing over 200 million do, and that's compared to when they expected to earn $200 million by the end of this year. And they said that just back in February So the market has shifted very quickly and it did for Centene as well. That's. They also, that's why they cut their guidance in part is because of the, the rapidly changing ACA market. And you know, like I mentioned around the country, not every payer has filed their rates yet with the states, but we've gotten a really good picture. There's already, I think, believe there's over 20, if not more, that have, like I said, it's the highest rate increases they've been asking for since 2018. It's a median increase of 15%. But some of them are going all the way up past 20, 25% rate increases. And, you know, we talked a few weeks ago, Scott, about how some of the Medicaid changes that were a part of that, that budget bill, those don't, won't go in effect for a few more years. So the political ramifications might not actually be tied to Republicans, that this is a, you know, it's a process that's going to take place over a decade. But the ACA changes, those, those could have political ramifications because, you know, the people are going to feel those effects literally in January of next year when they start to, you know, the coverage takes effect for these, for these plans and a lot of people are not going to receive, you know, the, the premium tax credits to make these plans affordable anymore. So, so we could see enrollment drop by half. We could see the uninsured rate really go up. So there's just so many different things happening in this market. Specifically, like I said, could really have some political ramifications for, for the party that's in power.
- [06:45]
B
No, there's so many interesting pieces there. First, one of the reasons I love talking to Jacob Emerson is I always learned something. I know that Oscar Health is ran by the former Aetna CEO Mark Bertolini, and Brilliant, brilliant person. I did not realize their business is so connected to the ACA and that's why they're now taking it on the chin. I did not realize that. Yeah, they do echo.
- [07:08]
C
They're really focused on Ichra too, which is, you know, like we talked about this, that tax credit that employers get to do, the, to have the employees purchase the ACA plan individually versus doing the traditional group policy. They were all in on that. They still are. So I think they're going to be a really interesting company to watch in terms of how does the private sector respond to, to this changing government markets. And, and like I said, Oscar and Centene, they'll be the ones to watch in terms of payers, navigate through this and ultimately stay sustainable?
- [07:45]
B
No, there's so many pieces that we also talked recently to a gentleman, CEO, founder Chris Ellis, who runs a real thatch that is totally tied into the ICRA market as well. So a lot of different ramifications of the lack of expansion of the ICHRA market. Now there's also the predictions that 10 million people will lose coverage under the new bill, the Big Beautiful act, etc, and that's obviously concerning. One of the complications for all of us politically is some of these insurance companies got so rich the last several years through a lot of these subsidies, through about a lot of this moving Medicaid to managed Medicaid, moving Medicare Advantage to managed Medicare, or moving Medicare to manage Medicare. And so it's quite complex because as much as, you know, what President Obama said when they're passing the Affordable Care act, what they said behind not so closed doors was we all know this is all getting passed on one way or another to taxpayers or to consumers one way or another. And what you're seeing now as President Trump and the Republicans try to pull some of this back, the reality is what you're finding is there's no free lunch because if we take 10 million people off the insurance rolls, which many of us are against in general, I'd like to have everybody have coverage. What you're seeing is there's no free lunch because the alternative to subsidies to the insurance companies is they're all going to try and raise the heck out of the rates. And that's what you're seeing with the average rate increases of 15% being proposed. So sort of like it's almost like whack a mole. The Obama administration, not so you could say disingenuously, but they said it pretty clearly, at least behind closed doors. This all sounds good, but we're passing it on to consumers and taxpayers one way or the other. And the Trump administration just anti it. But he has not itself been totally genuine in explaining, look, we're going to have premium increases someplace or another. If we take people off the insurance rolls that we're not paying for, that the insurance companies are going to make it up someplace else.
- [10:01]
C
Right.
- [10:02]
B
And you do have this very convoluted political world where what happens under either world, I'm a believer that we have a core supply and demand problem. Not enough nurses and doctors to take care of our growing population, our aging population. And the disappointing thing to me is one like, without starting on the insurance companies, we just have a core Supply and demand problem, not enough doctors and nurses to serve our country. One issue and obviously technology and all these other things help. The second thing that is so challenging is it's harder and harder to see the value that the insurance companies are having in trying to manage this problem or manage care. They've more and more just become a pass through. And as soon as medical loss ratios go up, then less profits go to the insurance companies, their values go down. But it's not a bad thing that medical loss ratios go up because it means you're actually spending more of the dollars to go towards patient care. So I don't have a good answer on the politics of it. As far as I could say, as far as I could tell, and this is an unpopular sentiment, neither side is doing a good job of taking care of health care. In fact, both sides are doing a horrendous job of it. The Republicans and the Democrats and both of them focus on everything but the core problem, which I think is largely supply and demand.
- [11:28]
C
Yeah, definitely. No, I agree with everything you said, Scott, and I, I do want to mention, you know, the, the rising ACA premiums next year. It's not just because the government is no longer going to be subsidizing a big chunk of that, but it's also because, you know, medical costs are up everywhere and it's certainly not just in the ACA market, it's across every market. But the, you know, we're expecting the medical trend to rise by 8% next year. The GLP1 problem just keeps getting worse and worse in terms of the costs and the demand for the, for those medications. And then some insurers are also citing the potential for pharmaceutical tariffs, which of course, you know, have not been implemented. But there's, they've been threatened several times now by the president. And so some insurance companies are building that into their rates now in expectation that those will eventually come. So there's, you know, there's just a lot of different things affecting this. But I also, you know, what you were saying about, you know, the academic when it passed 15 years ago and what that did in terms of, yes, it capped how much insurers could make in their insurance products. But that kind of brings us right back to what we've seen what I was talking about earlier with United growing just so big, really starting in 2010, growing big around. Not really. I mean, they did purchase a lot of insurance companies and they have a lot of insurance subsidiaries. But when you actually break down the subsidiaries by type, you look in the Clinical subsidiaries, they have over 2,000 in the, in the provider space and they only have about 200 in the insurance space. So that kind of tells you everything in terms of this. United is barely an insurance company anymore when you look at the big picture. It's, it's a lot of it is now coming from, from the clinical, the provider services, the optum arm, the PBM, all that good stuff. They owned 36 infusion focused subsidiaries, 24 PBM focused subsidiaries and then they have, you know, they have subsidiaries that are not even focused on healthcare, real estate, venture capital, media companies even. So I think it all kind of, this all kind of really ties together in terms of what the ACA did and we've seen a lot of analysis in how it really incentivized these companies to just grow bigger and bigger and bigger outside of the insurance realm. And, and we've seen some of our other smaller lines here at Becker's reporting on this too because this has implications for, for so many different sectors. They've got 880 home care companies, 423 ASCs. So all these numbers are really being reported for the first time or at least in one place. All based off publicly accessible reports, but all put into one report for us to analyze for the first time in an easily accessible way. And the numbers are just staggering. And like I said, it all really ties back to everything we were talking about with the insur. Making money on insurance is just becoming, is incredibly difficult if not impossible, which is what we're seeing with these guidance cuts. And, and this report confirms that the money, a lot of the money now is coming from the healthcare delivery side of things.
- [14:31]
B
I mean, and that's really the case, I mean, I mean certainly when you look at UnitedHealthcare Optum in its provider side is bigger than its ultimately insurance side. And that's been, that's been an evolution over the years. I think it was several years ago where that became the bigger part of the business. 100%. Jacob, always fantastic to visit with you. I always learn come out of the conversation having learned a ton as always. I want to thank you for joining us on the Vectors Healthcare podcast. Just remarkable. Thank you very much.
- [15:02]
C
Thank you Scott.