Here’s an interesting analysis from Justin Lake of UBS suggesting that growing COBRA uptake is cutting into managed care profits — but not too badly.
With concerns around impact of increasing COBRA membership to plans post introduction of 65% gov’t subsidy in Feb ‘09, we worked with Hewitt to develop proprietary data feeds illustrating increasing election rates post-subsidy. Data indicates that election rates have more than doubled for the subsidy eligible population to roughly 40%, with higher MLR membership pressuring earnings.
Est. manageable impact w/‘09 EPS range -1 to -3% and decelerates in 2010….While not immaterial, it is apparent that ex significant further increase in election rates or changes to current subsidy program, plans should be able to manage thru impact. We leave EPS estimates intact given our MLR estimates were already conservatively set at or above the high end of company guidance to account for COBRA pressure.