Corporate Research Group’s Weblog

Here are a few excerpts from the 2009 CRG premium rate survey, which will be published shortly in Managed Healthcare Market Report.

“The city of Los Angeles expects overall premium rates to increase just 1.5% in 2009, after a 6% to 10% increase in 2008. Rates for an HMO and PPO from WellPoint’s Blue Cross of California are expected to remain unchanged.  Kaiser HMO premiums are expected to rise about 3%.  About half of the city’s 78,000 lives are in the Kaiser HMO.”

“The California Public Employees’ Retirement System (Sacramento, CA), said HMO premiums will increase 6.6% in 2009, after rising 7.4% in 2008. PPO rates will actually decline 0.04%.  Overall premiums for 2009 will increase 4.3%, the lowest rate of increase in more than a decade.  Calpers, with 1.3 million covered lives, expects to spend about $5.7 billion on healthcare benefits in 2009.”

“The State of Florida expects premiums to rise about 11% in 2009.  The state, with more than 368,000 covered lives, offers a self-insured PPO administered by Blue Cross Blue Shield of Florida and HMOs from AvMed, Capital Health Plan Florida Health Care Plans, UnitedHealth and Vista.”

“The city of Indianapolis is expecting a 2009 premium decrease of about 4.3%, down from a 4% increase in 2008.  The city, which covers 7300 active employees and 450 retirees, cut premiums by adding deductibles of $250 for inpatient services and $100 for brand prescriptions per individual to its fully funded HMO. ”

“The Group Insurance Commission (Boston), which purchases health insurance for state employees, received a 6.4% rate increase for active employees for fiscal 2009, ending June 30.  GIC, which covers about 300,000 lives, offers plans from Neighborhood, Health New England, Fallon, Harvard Pilgrim, Tufts and Unicare.”

“The City of St. Paul, MN, received a 9.5% rate increase in 2009, compared to an 18.5% increase in 2008.  The city will also receive a 9.5% increase in 2010 as part of a guaranteed contract.  The city offers three health plan options from HealthPartners, including two PPO options and a POS plan.  The city covers 2850 active employees and 2350 retirees.”

“The State of Ohio, with more than 129,000 lives, is expecting a premium increase of 7% in 2009 after receiving a 1.5% increase in 2008. The state offers five plans: Ohio Med, Aetna, Paramount, The Health Plan, and United Healthcare.”

“The Texas Employees’ Retirement System (Austin, TX) will see average monthly single HMO premiums increase about 5% in the fiscal year ending Aug. 31, 2009.”

Some definitive data is starting to come in on rate trends for 2008 and 2009.

The Kaiser Family Foundation just came out with its 2008 figures, estimating that health insurance premiums will rise just 5% for the year.  Kaiser also notes that many workers faced higher deductibles in 2008, driven in part by the growth of consumer-directed health care plans.

As for 2009, Towers Perrin said that employer healthcare costs are expected to rise about 6%, with employee costs up between 7% and 10%.  Both the Kaiser and Towers Perrin figures are based on surveys of employers.

One striking observation made by Towers is the variation among companies.  The most effective companies at controlling costs  (which Towers labels high performers) “spend almost $1,500 less per employee overall,” Towers said.  About $350 of that savings is shared with employees in the form of lower contributions, Towers added.

Furthermore, Towers said, 42% of high performers are expected to see healthcare cost rise 3% or less in 2009.  Towers’ conclusion: ”A variety of health-focused management techniques…are paying off in significant ways—and point toward broader solutions to the cost crisis.”

I guess it’s all good. 

Cigna has come out with a new online survey (press release) that let’s members “rate their behavioral health care experience across a broad range of factors, such as how easy it was to make an appointment, whether they were seen on time, the physical condition of the care giver’s office, as well as the quality of the treatment itself.”

If these member responses help Cigna and behavioral health professionals provide better care, I’m all for it.  But there are two points of reference that come to mind as I consider the Cigna effort.

1. Some time ago, Harvard professor Robert Blendon offered a provocative assessment of public attitudes toward managed care after the first HMO horror stories started to emerge.  Blendon pointed out that the HMO backlash of the 1990s actually occurred as overall customer satisfaction with HMOs was pretty high.  His conclusion: people are willing to endure obtrusive administrative barriers and other annoyances as long as they aren’t denied care when they are really sick.

2. Boston-based Best Doctors, which reviews diagnosis and treatment recommendations made by physicians, has found that even when the diagnosis is wrong, the vast majority of patients stay with their physician.  What changes isn’t the provider of the care, but the care that’s provided. 

This is just a guess, but here’s what I think Cigna will find out from its online survey.  People generally like their behavioral healthcare providers, and as much as they dislike petty bureaucratic annoyances, they’re willing to put up with it all as long as they aren’t denied care when they’re really in need.

I’ll be interested if seeing Cigna uncovers anything substantially different.

Whatever the reasons for the recent drop in managed care stocks, Oppenheimer analyst Carl McDonald notes, “The industry doesn’t hold very many of the bonds issued by Lehman, AIG, and Washington Mutual, or much Fannie or Freddie preferred stock.”

Writes McDonald: “In total, the publicly traded managed care plans hold about $271 million in Lehman debt, $150 million in AIG debt, $74 million in Washington Mutual debt, and $273 million in Fannie & Freddie preferred stock. The total investments in these financial institutions is not large, at just 0.8% of total cash and investments for the industry.”

McDonald estimates that WellPoint has the biggest exposure, “with about $80 million in debt from Lehman, $120 million from AIG, and $24 million from Washington Mutual.  This is on top of WellPoint’s disclosure of $243 million in FNM and FRE preferred stock.”  That’s about 2.4% of WellPoint’s total cash and investments, McDonald says.

In the wake of last year’s investigation into unfair marketing practices by Medicare HMOs, the Centers for Medicare and Medicaid Services have issued new regulations.  (Note: I wrote a commentary that included some observations on Medicare marketing fraud last May).

The new rules include prohibitions on telemarketing and door-to-door sales calls as well as “financial incentives that could encourage agents and brokers to maximize commissions by inappropriately moving, or churning, beneficiaries from one plan to another each year.” 

Other specific prohibitions include the following:

“Providing meals to beneficiaries as part of marketing activities;

“Cross-selling of non-health care related products during any sales, marketing, or presentation for an MA [Medicare Advantage] plan or PDP [Prescription Drug Plan];

“Conducting sales presentations or distributing and accepting plan applications in provider offices or other places where health care is delivered; and

“Conducting sales activities, distributing, or collecting applications at education events.”

In addition, CMS plans to triple the number of “secret shoppers,” who are Medicare officials posing as potential enrollees, to monitor health plan marketing activities.  Last year, CMS secret shoppers attended 300 Medicare HMO sales and marketing events. 

Our comment on all of this?  Good.

As usual this time of year, we’re fishing up our annual survey of health plans, employers and employment coalitions to get a feel for 2009 commercial managed care premium rate hikes.  Our preliminary numbers once again suggest a rate increase in the 6.5% to 7.5% range for the coming year (after benefit buydowns).  We should have better numbers in a couple of weeks.

Oppenheimer analyst Carl McDonald points out in a research note that the two-year anniversary of Steve Hemsley’s ascension to the chief executive post of UnitedHealth Group is rapidly approaching (Dec. 1, 2008 to be exact).  Since Hemsley took over, shares have fallen about 40%.  And according to McDonald, there’s no easy fix for United going forward.

“Turning United will not be easy, because there is no simple strategy to start growing the commercial risk book again, and United’s Medicare business is generating an unsustainably high margin,” McDonald writes.

So what’s a CEO to do?  McDonald outlines the pros and cons of some likely (and not so likely) moves United may consider.  We’ve picked out five of the most provocative possibilities noted by McDonald:

1. “Break up the company by selling off either the PBM business or Ingenix. 
 
“Pros: A break-up would help the stock price in the short-term, by highlighting the relatively low valuation that the market is currently putting on the health care business. The move would also buy more time for the current management team.
 
“Cons: This is not a good long-term solution for the company, and United would have to cut its long-term earnings growth rate.”

2. “United could try to buy its way out of trouble.
 
“Pros: Acquisitions would enable United to buy companies that have an inherently faster core rate of growth than the legacy United business, while synergies from the deal would drive some earnings growth for the next couple of year, and the deals would likely add a small amount of initial accretion.
 
“Cons: United’s debt to capital ratio is already above 40%, significantly limiting the company’s ability to complete a significant transaction, integration issues related to deals have hampered the company’s service, and it takes a lot of small deals to move the needle at United given the size of the overall company.”

3. “Pursue a less is more strategy. 
 
“Pros: There are numerous examples in the last decade of plans that have enjoyed great financial success by implementing a strategy of big rate increases, massive enrollment losses, and improved margins.
 
“Cons: A major retrenchment strategy by the largest health plan in the industry never plays well in the media, never mind in the middle of competitive election. Moreover, this strategy is not without risk, particularly from adverse selection, while United’s non-risk business could suffer if United is no longer able to use its girth to negotiate large discounts from national providers of ancillary services.”

4. “Pull off some amazing Medicare execution in 2009, and improve benefits enough that enrollment grows, but not so much that margins contract significantly.
 
“Pros: Executing on this challenge would enable United to show decent operating earnings growth in 2009.
 
“Cons: Just like in the commercial business, it is very difficult to add enough new enrollment to offset a deterioration in margins.”

5. “Do whatever it takes to fix the service issues, even if that includes a multi-billion charge to consolidate systems.
 
“Pros: Streamlining the company’s operations after a [string] of acquisitions in recent years would improve the flow of information to the corporate level, and allow executives to make decisions and react to changes more quickly. The restructuring would also enable United’s often disparate businesses to more easily communicate, and likely result in lower SG&A….

“Cons: The market would most likely not be pleased, at least initially, to see United take a multi-billion charge to align its systems and operating structure, but since most of the charge would be one-time in nature, it would be quickly overlooked, with the market more focused on the ultimate run rate of the company after the re-alignment were implemented.”

Happy Birthday to you, Steve!  Are you one?  Are you two?  Are you out of options?