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Becker’s Healthcare Podcast
Payers Under Pressure: A Tumultuous Week for Health Insurance Giants with Jakob Emerson
00:13:40
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- [00:02]
A
This is where health insurance leadership comes together. Becker's 4th Annual Spring Payer Issues Roundtable brings together over 400 payer and health plan executives and more than 100 speakers to Chicago, April 13th and 14th. This year's event includes keynote conversations with the industry's top leaders and former President George W. Bush. For the full agenda and event details, visit Beckershospitalreview.com and click on the Events tab in the upper right. We're looking forward to hosting you here in Chicago.
- [00:34]
B
This is Scott Becker with the Becker Healthcare Podcast. We're joined today by our payer guru extraordinaire, Jacob Emerson. And what a week it's been for payers. Jacob, I'm going to tee you right up and you're going to tell us what are we watching in the payer universe and what does it look like and how is it evolving?
- [00:54]
A
Yeah. Hey Scott, Well, I mean, to your point, it's been quite the week and I saw your post on LinkedIn this morning that it's been a blast bloodbath for payer stocks just in the last 24 to 48 hours and for multiple reasons. You know, there's the MA rate flat proposal from from the government. There's United Health's most recent earnings report which was not good, coming off of already pretty bad year for the company and where they were supposed to be making recovery with their new and old CEO. And then last week we had all of the insurer CEOs get dragged to Washington to testify in back to back hearings, nine hours of testimonies in front of Congress as there's a lot of political fights going on over the ACA over Medicare Advantage over employer health insurance costs. So just a real quagmire conundrum, however you want to describe it. It's not a good time for the health insurance industry and really not a good time for the big publicly traded guys.
- [01:53]
B
So what happens from here? I know that United stock went down almost 20% yesterday. That's its worst down day in a long time though it's down 47 over the last year. It also projects its first year, 2026 without revenue growth and I think nearly four decades.
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A
Yeah.
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B
Where does this go from here? What, what is the. Because I and again, Medicare Advantage rate's not going up nearly as much as the payers had hoped for. But Medicare Advantage costing the government more than traditional Medicare. There's changing enthusiasm for Medicare Advantage. Are people trying to figure that out? Any thoughts? What are you hearing about where Medicare Advantage goes from here? Where the Payers go from here?
- [02:36]
A
Well, I mean I think if we're just looking at these companies as a whole and we're just talking about the big publicly traded conglomerates, I've definitely been hearing rumblings that this is the, I think on the extreme end, this is the beginning of the end of the big vertically integrated conglomerate. Whether you believe that or not, I think is totally up to. I think that's a lot of speculation. But what we are seeing in terms of concrete actions from these companies. Let's take UnitedHealth, you know the biggest one yesterday and we knew this last year because they've been having a difficult couple of years now financially. But yesterday in their earnings call with investors they, they straight up admitted that they have been hurt by over expanding. They got too big. Optum especially got too big in terms of its provider portfolio and they spent last year and probably will this year scaling back in terms of how many providers they contract with. How many just the literal physical footprint in terms of their clinics in certain markets and then walking away from contracts with other insurers where Optum was contracted to take care of other insurers members through their providers. So that's on the Optum side and then on the UnitedHealthcare, the insurance side they, and this is, you know, it's planned but they are fully, they expect to lose up to almost 3 million members this year alone across all of their markets, across aca, Employer, commercial Medicaid and Medicare Advantage. And again it is purposeful but they're basically, they're pulling back on the quantity of the amount of members they have across these markets to focus on the margin making sure that these members that remain, that they, they, that they're more profitable. And it's either through, you know, the, the coding practices or the contracts they have with providers in certain markets. It's going to be different everywhere. But that's really the message overall for these companies is it's, it is margin over expansion over expansion of membership which has not been the case in the past. And then you know, you asked about where does Medicare Advantage go from here And I think that's a really good question as well. Cms, I think overall CMS and then under this newer administration there's a bipartisan effort clearly to go after the risk adjustment, the coding issues that we've, we've heard about for over a decade now. And so they're going after that in this latest proposed rule. But they're also going after how much these plans are getting paid. You know, they got a $25 billion boost last year and this year there's going to be no payment increase there. It's point it's less than 1%.09%. It's about $700 million which for an industry as big as, as big as this is really nothing. And so that means that these plans are going to have to retrench even further than they did last year. Slash this year. They're going to have to pull out of more markets, they're going to have to slim down benefits even further. And who does that ultimately hurt? Seniors on the ground. But for the companies themselves, it's going to mean less money and less product to put out there.
- [05:38]
B
Fancy. And you mentioned at the end of the day it ends up hurting the consumers. Yeah. And this is going to lead to less choices for consumers and it's going to happen relatively rapidly, quite frankly, because you've already seen so many of the other insurers scale back their Medicare Advantage plans as loss ratios get tighter and things get more challenging. But this is going to push some systems, some patients, consumers, seniors back into traditional Medicare, right? I mean there's just no way around that, right?
- [06:09]
A
Yeah, I would think so. Or to other competitors plans if they're still available, which they're also still going to be going through the same financial issues with ma. So. Yeah, but the thing, it can be tough to switch back to traditional Medicare either because it's more expensive or previously conditions can be counted against you. Whatever it is, it's not just an easy switch back. So that is a problem. But you know, I've also, I think this just points to a conversation you and I were having a few weeks ago when we knew that the pair of CEOs were going to be summoned into Congress to talk about all these issues across the board, not just in ma. And I think it's just maybe slowly lawmakers and regulators at cms, whoever is slowly come doing coming to a realization of what has happened when you basically handed over the entire health care system slash health insurance industry to these mega conglomerates and you know, about five or six of them. And this is now where we're at. And so, you know, I don't know if that means some reflection.
- [07:15]
B
Let me ask you to stop there for a second. Yeah. Because you've said something out loud that I've been saying for some time that I never hear you say out loud. Which is, which is this is really what happens when the government turns over Medicaid and Medicare to four or five large payers. Maybe six or seven when you count Humana and Centene on the Medicaid side and so forth. But isn't that what's happened? We've just turned over a huge amount of the government programs, which are now almost about half of all healthcare, two huge payers and it's become middle people amongst middle people amongst middle people. Isn't that what's happened, that you've just.
- [07:53]
A
Yeah, I mean, it's exactly what's happened. You've got more than 50% of seniors enrolled in private Medicare plans. And I believe it's over 40 of the states now do manage Medicaid, which is just privatized Medicaid contracts. And then that's of course, of course you've got the ACA as well, which is just, just a marketplace for private health insurance to insurers to sell their health plans. So overall you've basically, you've turned what is federal services, health care services, and you've given those contracts to private insurance companies over, let's say the last 15 to 20 years. And now this is where we're at. And however, you know, you think about this, however people fall politically, I think at the end of the day it's, you know, the fact is that these are large publicly traded companies, their bottom line, their main goal is to make money for investors to return a profit and they have to return a profit off of what are public services, Medicaid and Medicare. So you know, however, however you, you know, fall down the political line. I think that's the crux of it is that these public programs have been turned over to profit driven companies. And this is now the effect of.
- [09:01]
B
Where we're at 100%. So we'll see where this all evolves. And Jacob, I mean this has just been a fascinating week to watch. The payers, a couple of them were down nearly 20%. Anything else you wanted to comment on today or share today about this or is that enough for today?
- [09:19]
A
Well, to your point of the stock bloodbath down 20%, I think it's almost $100 million in stock market value across the publicly traded ones combined over the last 48 hours, which is just, I mean, horrible coming off of a pretty bad year, at least for even, just for United. It's even the incremental gains they tried to build back last year have just been almost entirely wiped out. But I did want to just very briefly comment on the hearings from last week because like I mentioned a few minutes ago that now CMS under Trump and the same is under Biden that it was, they weren't being very favorable towards the MA plans in terms of rates and cracking down on certain risk adjustment policies in Congress as well. Both House Republicans and Democrats were aligned in the facts of pointing their ire towards the CEOs. I will say, you know, it didn't really seem like the main issues were really, they didn't nail the what, what is driving up costs. They didn't really Discuss things like GLP1s or you know, how a lot of these companies are structured and how their finances work. But it is very clear, you know, from a bio bipartisan perspective that Americans through these lawmakers are very, very angry at these companies, whether these companies deserve it or not. In terms of where costs are now. You know, I think again that could be heavily debated, but there's definitely, you know, these companies are seen as the face of high ACA premiums, high employer insurance costs, and you know, the MA network issues that we see with hospitals all over the country. So even if they aren't necessarily completely to blame because of things like drug manufacturing costs, the fact that health systems are asking for a lot more money now in their contracts, it's the insurance CEOs that are the ones that have to answer for it all.
- [11:12]
B
It's an easy win and game for the politicians, of course, to go after the health insurance CEOs. And of course it is, as you say, more complicated than this because so much of this has happened from the government flowing through so much money to the payers. That has led to a ton of health care inflation and then payers trying to control what they send through to providers and health systems. And I saw that, you know, United reported a Medicare loss ratio of 89.1% which in the years that I've been watching medical loss ratios, that's the highest in some point.
- [11:45]
A
Yeah.
- [11:45]
B
Still means 11% of the dollar is going to some kind of administrative cost other than actual healthcare, you know, and that's, that's up from 80 to 83% when I used to start following this. 89 is a high number, I grant that. But it still means a crazy percentage of cost and dollars flowing through the administrative healthcare versus direct healthcare delivery. And so, you know, there is, you know, in some ways the big insurers are just becoming a huge pass through the government and the government can't blame themselves for how much money they spend on healthcare. So they got to blame it through the payers in some ways where they put all the money through. So it's really, it is really sort of like the emperor has no clothes because everybody', fault, everybody's at fault.
- [12:24]
A
And that's where all the finger pointing comes from. But I think, you know, I talked to Elevance's president of she's the individual in charge of all of their contract and across all the states that they, the 14 states they contracted from a health plan perspective. And you know, she basically told me, you know, everybody wants to point at us saying, you know, we take in record profits, that we're all just trying to make a profit and all this good stuff. But she goes, at the end of the day, we have a fiduciary duty to employers to get the best cost for them, to keep the cost down as much as possible and that they don't make a lot of money on health insurance. They were even saying in these hearings they make single digit margins if that a lot of them lose money on their ACA plan businesses. So the insurance isn't necessarily the problem. It is the vertical integration. It's where, where they do actually make a lot of money, which is not in health insurance. And with the vertical integration trend, it does seem like the cracks are starting to show. When you talk about Optum, when you talk about all the PBM scrutiny as of late, whether that actually means anything, I guess we'll see. But there are, there are cracks beginning to show in how these companies have structured themselves over the last decade or so.
- [13:28]
B
Jacob Emerson, always great to visit with you. A complicated set of issues, but fascinating to watch. Thank you for joining the Beckers Healthcare podcast today.
- [13:36]
A
Thank you, Scott.