I won’t say that Republicans despise President Obama as much as they despised President Clinton (man, did they despise President Clinton), but last night’s State of the Union address received a cold reception from conservative lawmakers. The whole evening, in fact, seemed subdued to me — long stretches during the speech when you could hear a pin drop. In fairness, that’s probably because everyone actually wanted to hear what the President had to say. Given the Democrats’ Senate loss in Massachusetts and with the Obama agenda hanging in the balance, last night’s speech was one of those “Whatcha gonna do?” moments.
Obama did well. I thought it was a powerful — and at times moving — speech. But it was clear he distanced himself from healthcare reform; instead the emphasis was on jobs and middle class economic security. He didn’t talk about healthcare reform until halfway through his hour-long speech — and then for only five minutes. What exactly did he say about healthcare?
After nearly a century of trying — Democratic administrations, Republican administrations — we are closer than ever to bringing more security to the lives of so many Americans….Still, this is a complex issue. And the longer it was debated, the more skeptical people became….But I also know this problem is not going away. By the time I’m finished speaking tonight, more Americans will have lost their health insurance. Millions will lose it this year. Our deficit will grow. Premiums will go up. Patients will be denied the care they need. Small-business owners will continue to drop coverage altogether. I will not walk away from these Americans, and neither should the people in this chamber….
Here’s what I ask Congress, though: Don’t walk away from reform, not now, not when we are so close. Let us find a way to come together and finish the job for the American people. Let’s get it done.
It’s not as strong a statement as reformers would have liked. For example, he’s still talking about coming together and putting aside differences when it’s clear that approach won’t work with Republicans. The only way reform will get done is if the House passes the Senate bill — and that’s going to take some arm-twisting by the Obama Administration.
There are differing views on why Obama appears to have de-emphasized healthcare reform. Here are two. 1. Reform is dead, and he’s turning tail and running. 2. Getting reform out of the spotlight might be what’s needed for the final push toward getting it done. I’m already on the record that in the end, House Democrats will come together and pass the Senate bill. Nobody I know agrees with me. But that’s all right. What really matters is whether Obama has the will to push reluctant members of his own party — which I might remind you is in the majority — to get it done.
Remember all those nice charts the Congressional Budget Office published showing how healthcare reform would reduce the ranks of the uninsured? CBO also included a chart showing what would happen without reform. To wit: the number of uninsured would rise to 54 million by 2019. That would be an increase of 46% since the demise of Hillarycare. Read it and weep.
Updated March 22, 2010, to correct error in chart.
In the category of “is this good news or bad news,” the state of Florida reports that managed Medicaid membership rose about 1% in January to 1.8 million lives — accounting for nearly 70% of total Medicaid enrollment in the state. Scott Fidel of Deutsche Bank reports that Florida managed Medicaid enrollment has grown for 13 consecutive months and is up 23% since January 2009. However, the pace of growth has slowed from 1.9% in December and 2.8% in November. Notes Fidel:
Given the medical cost challenges that Medicaid plans had with new enrollment in 2009, we would view a slowing of organic growth in the near term as a necessary ingredient to help stabilize medical cost trends in Medicaid managed care. In this context, we view the slower growth rate in Florida Medicaid in January as an encouraging development. However, it is too early to tell whether the stabilization in enrollment in Florida will also be replicated in other markets, or whether the slower growth rate will actually lead to more stable medical costs for the Medicaid plans.
Could the slowing rate of increase also be a sign that the economy is improving? Not so fast, Fidel says: “The recent rise in weekly jobless claims data suggests that caution should be applied before assuming that unemployment is now set to start improving in the immediate future.”
David Einhorn, famous short-seller and head of Greenlight Capital, in a speech last year on investing:
Americans understand that the Washington-Wall Street relationship has rewarded the least deserving people and institutions at the expense of the prudent. They don’t know the particulars or how to argue against the “without banks, we have no economy” demagogues. So, they fight healthcare reform, where they have enough personal experience to equip them to argue with Congressmen at town hall meetings. As I see it, the revolt over healthcare isn’t really about healthcare, but represents a broader upset at Washington. The lack of trust over the inability to deal seriously with the party goers feeds the lack of trust over healthcare.
As expected, enrollment in Medicare Advantage plans took a hit in January — falling nearly 3% to just shy of 11 million members compared to year-end 2009. (Enrollment is still up 5% year-over-year).
Also as expected, the biggest losses were among Private Fee for Service plans, reflecting market exits by WellCare and Coventry in light of looming reimbursement cuts. PFFS enrollment fell 33% to 1.6 million. Since PFFS plans are the least efficient Medicare Advantage product (see prior post), it’s hard to argue they are an economically viable product. Unfortunately for health plans, however, PFFS was a fast-growing product.
But membership in local CCPs (largely Medicare HMOs) – the most efficient Medicare Advantage product – was up 2.8% to 8.2 million members. Regional PPOs also enjoyed gains, up 54% to 689,000. All of which is a good indication of what will likely happen to Medicare Advantage when the full weight of reimbursement cuts take hold (Note: reform or not, cuts are coming). Wither PFFS. Gains in PPO. HMOs will struggle, but hang tough.
President Obama spoke last night about the future of healthcare reform in the wake of Republican Scott Brown’s U.S. Senate victory in Massachusetts.
I would advise that we try to move quickly to coalesce around those elements of the package that people agree on. We know that we need insurance reform, that the health insurance companies are taking advantage of people. We know that we have to have some form of cost containment because if we don’t, then our budgets are going to blow up and we know that small businesses are going to need help so that they can provide health insurance to their families. Those are the core, some of the core elements of, to this bill. Now I think there’s some things in there that people don’t like and legitimately don’t like. If they think for example that there’s a carve out for just one or two particular groups or interests, I think some of that, clearing out some of that under brush, moving rapidly.
As Paul Krugman notes, not exactly fighting words.
One thing is clear, voters do not want the trillion-dollar health care bill that is being forced on the American people. This bill is not being debated openly and fairly. It will raise taxes, hurt Medicare, destroy jobs, and run our nation deeper into debt….I will work in the Senate with Democrats and Republicans to reform health care in an open and honest way. No more closed-door meetings or back room deals by an out of touch party leadership. No more hiding costs, concealing taxes, collaborating with special interests, and leaving more trillions in debt for our children to pay.
Here’s some early reaction from healthcare industry observers on Masachusetts’ stunning special election of Republican Scott Brown to the U.S. Senate.
We’ve spent so much time discussing the life of healthcare reform, it seems only fitting to talk about its death. The resounding election of Republican Scott Brown as the next Massachusetts Senator leaves the Democrats with no good alternatives. The only hope is that the House accepts the Senate version of the health care legislation, but this isn’t going to happen….It’s hard to see how any potentially vulnerable Democratic member of Congress with a desire to win another term will want anything more to do with this health care reform bill. And since Brown was virtually unknown (even in Massachusetts) just over two weeks ago, the list of vulnerable seats is now a lot longer. — Carl McDonald, Oppenheimer
His upset win reflects voters’ suspicion of Big Government solutions and their frustration with either party when it is in power. What it does not do, sadly, is suggest a new answer to the country’s medical mess. In a bit of an oddity, voters in the one state that already has near-universal healthcare stymied the Democrats’ plan to give it to everyone else. USA Today
Scott Brown was not elected primarily because he said: I will be the 41st vote to stop healthcare, but this statement will be the one weighing on the 52 House Blue Dog Democrats and many House liberals who are stopping dead in their tracks…Brown won because this is an anti-incumbent, anti-Washington big spending, anti-Washington closed-door, anti-bloom off the rose/Obama electorate. — Steven Valiquette, UBS
Healthcare reform isn’t dead, despite last night’s stunning special election of Republican Scott Brown as the junior U.S. Senator from Massachusetts to fill the late Ted Kennedy’s seat.
Maybe it’s wishful thinking (or the liberal in me), but you have to remember what happened after the health insurance industry — with the help of Harry and Louise — killed Hillarycare 15 years ago. The ranks of the uninsured rose steadily from about 37 million then to 50 million now.
We still face an eroding employer-sponsored insurance market, a broken individual insurance market, inadequate Medicaid eligibility levels, and rising insecurity, vulnerability and out-of-pocket expenses for the lucky ones among us who have healthcare coverage.
Obstruction won’t alter these trends — and in fairness that’s all Brown’s victory offers. As USA Today notes, what the victory “does not do, sadly, is suggest a new answer to the country’s medical mess.”
At what point does healthcare insecurity touch so many of us something has to be done: 75 million uninsured? 100 million? Do we have to wait until 75% of personal bankruptcies are from healthcare bills versus 50% today.
These aren’t rhetorical questions. The reason reform came so far this time around was that the numbers were getting too big for people to find comfort in platitudes like “it won’t happen to me.” “It” being sickness and financial ruin.
Remember, the only reason Republicans can block reform is filibuster power, not an actual majority. And that’s why I think the House will ultimately pass the Senate bill — with all its flaws — and get reform done. We’re too far along — and too many people would benefit — not to make reform happen.
I’m up in the Boston area today watching with great interest the coverage of the special election to fill the late Ted Kennedy’s U.S. Senate seat — the outcome of which holds important implications for healthcare reform. But whatever the result, Massachusetts already offers lots of lessons about healthcare reform. Notes Credit Suisse:
Up to this point Massachusetts healthcare reforms have focused entirely on expansion and not on costs, leading to a growing source of budgetary pressure for the state….According to the state, the monthly premiums for both the lowest and highest cost Commonwealth Choice Bronze plan have increased by 15% during 2009. Greater than expected enrollment in the subsidized Commonwealth Care program was the primary reason the state’s healthcare expenses exceeded budget by 20% in 2008….
In response, the state is undertaking numerous reviews and studies in order to develop cost containment strategies….The two basic approaches to reduce health care spending are (1) lowering unit costs through regulation of prices paid (rate setting, bundling payments) and/or substituting to less expensive services (limited service clinics, increase use of nurse practitioners), and (2) lowering utilization or volumes by providing incentives for more efficient care (pay for performance, increased adoption of health IT) and/or using regulatory mechanisms to reduce volume (decrease end-of-life care service intensity).
Tough choices. Now shift to national reform. The emphasis is also on expanding coverage, rather than controlling costs. So I wouldn’t be surprised to see the nation struggle with similar tough choices down the road.
The only thing worse would be no reform, which could conceivably happen if Republican Scott Brown wins the tight Massachusetts race over Democrat Martha Coakley. Hard to imagine all this was for nothing.
Given the uncertainty — and politics — of healthcare reform, it’s no surprise managed care merger and acquisition activity slowed in 2009. But you can expect an upswing in activity once reform is finally behind us. In this video interview, Carl McDonald of Oppenheimer comments on the reasons for the lull in 2009 and gives his outlook for M&A in 2010. From the Nasdaq Market Site in New York, Jan. 15, 2010.
I suppose that the October release of a flawed and biased study suggesting that healthcare reform would cause insurance premiums to soar (see prior post) was proof enough that America’s Health Insurance Plans had shifted gears and was now actively trying to kill reform. I, however, clung to the belief that the association — long recognizing the writing on the wall — was still in favor of “reform” but was seeking concessions:
Why kill something that gives you most of what you want, i.e., no public option and no serious consideration of single-payer healthcare. I do think the industry is still lobbying for a stronger insurance coverage mandate to address the likelihood that the young and healthy will simply pay a small fine rather than buy health insurance.
After all, AHIP still supported guaranteed issue and some form of community rating….Right?
Then there was the report of an industry rift — with Blue Cross Blue Shield plans stepping up the anti-reform rhetoric, according to The Wall Street Journal, even as other big players like Aetna were seeking to mend fences after the October fallout. O.K., but this could still be just another example of fighting for “the right kind of reform.” After all, didn’t Blue Cross Blue Shield of North Carolina end up killing those planned Harry & Louise-esque commercials it had on the drawing board (see prior post)….Right?
Comes now a report that since September AHIP has been quietly soliciting funds from its members — some $10 million to $20 million from six major health plans — and funneling the money to the U.S. Chamber of Commerce to help subsidize “third-party television ads aimed at killing or significantly modifying the major health reform bills moving through Congress.” The six plans named in the article are Aetna, Cigna, Humana, Kaiser, UnitedHealth Group and WellPoint.
Below are two examples of the types of commercials the Chamber has run through the Campaign for Responsible Health Reform and Employers for a Healthy Economy. Let’s see, how can this be spun by someone like me who actually believed AHIP had seen the light — well to some extent at least? I’ve got it! As Matthew Holt noted in The Health Care Blog, insurers are the “poor suckers” in reform because the industry signed on for guaranteed issue and community rating but didn’t get a strong mandate to avoid adverse selection — a valid point. So I guess you could argue that all AHIP is doing is fighting for justice…Right?….All of a sudden I’m not feeling so well.
Given hefty rate increases, health plans should enjoy improved profits in 2010. That’s the conclusion of our annual Outlook for Managed Care report (due out shortly). It’s also generally the conclusion of Wall Street analysts. But there are some dissenters and caveats. Here’s the good and bad from four analysts.
“Commercial risk-based pricing appears to be strengthening for 2010 which could lead to improvement in Commercial MLRs….We enter 2010 with a more favorable near-term view although are cautious longer-term due to health reform earnings risks.” — Scott Fidel, Deutsche Bank Securities. Buy: Aetna, Magellan, WellPoint. Sell: None
”In 2010, we expect the operating margin to improve as the price and medical cost trend environment has stabilized, and SG&A levels may improve as MCOs focus on what they can control. It seems unlikely that operating margins will deteriorate further into 2010.” — Thomas Carroll, Stifel Nicolaus. Buy: UnitedHealth, WellPoint. Sell: None.
“We think most of the larger, diversified managed care plans are pretty fairly valued at this point, as the group rose more than 50% last year…While we know that pricing is better this year, there is still economic related cost and enrollment pressures. Moreover, while reform certainly turned out to be a lot better than the worst case fears, it is still bad for the group and it will put pressure on margins and earnings in the future.” — Carl McDonald, Oppenheimer. Buy: Aetna, Amerigroup, Cigna, Health Net, Humana, Magellan, Triple-S, Universal American, WellPoint. Sell: Centene, eHealth, UnitedHealth
“We Continue To Prefer Companies With Less Exposure To Health Care Reform Risks. This leads us to favor the Medicare and Medicaid businesses.” Matt Perry, Wachovia. Buy: Amerigroup, CVS Caremark, HealthSpring, Humana, WellPoint. Sell: None.
Here’s a good chart from the Deutsche Bank Health Insurance Market Survey (see prior post) showing projected 2010 premium rate increases among top health plans — ranging from 7.2% for fully insured business at Kaiser to 17.4% for fully insured business at Aetna. These are after benefit buydowns averaging 350 basis points. Note the projected increase among not-for-profit Blues at 11.1% should bode well for the competition. The survey is based on responses from 240 employers covering nearly 600,000 lives.
The National Assn. of Insurance Commissioners issued a letter last week to House Speaker Pelosi and Senate Majority Leader Reid expressing certain concerns about healthcare reform. Here’s what NAIC had to say about provisions that would give federal regulators authority over health plan premiums:
Granting a federal regulator the authority to approve or deny premiums, or exclude plans from the Exchange if it disapproves of a premium increase, interferes with states’ financial oversight of insurers and could expose a plan to insolvency, straining state guarantee funds and creating anxiety among healthcare consumers. A better way to ensure appropriate regulatory oversight over rates is to build that oversight into the federal minimum standards that states must meet so that financial regulation and rate regulation operate together.
I had the opportunity to talk to Karen Davis, president of The Commonwealth Fund, about the likely impact of healthcare reform on the average American. Her take is generally a positive one. Here’s the video from the Nasdaq Market Site, Jan. 6, 2010.
Stifel Nicolaus analyst Thomas Carroll has some good things to say about WellPoint Inc., upgrading the stock to “buy” from “hold” and projecting shares in the company will rise 21% to $72. He also suggests things are turning around for managed care in general, noting, “We believe key operating expectations for industry stalwarts are conservative, given reform-driven posturing by management, leaving room for potential upside.” But Carroll also had a warning for investors, one I’d tend to agree with:
Longer term we believe that increased government intervention will make it more difficult for managed care organizations to realize margin expansion adding to operating uncertainty and potentially pressuring valuations. As a result, a “buy and hold” investment strategy remains unpractical for healthcare investments, in our opinion….The finalization of health reform legislation, the industry’s response, actual implementation, and unintended consequences should create multiple operating outcomes, and therefore a robust trading environment for healthcare stocks for the next five years.
Health insurance premiums for fully funded members are expected to rise 9.6% in 2010, compared to a 6.6% increase in 2009, according to a survey from Deutsche Bank, including benefit buydowns of 350 basis points in 2010 compared to 170 bps in 2009.* With costs expected to rise about 7% in 2010, it’s clear health plans are pricing to make up for recent poor performance and to get ahead of the additional costs associated with reform, Deutsche Bank analyst Scott Fidel notes. Aetna — which is trying to improve margins after a run of membership gains — has the most aggressive price hikes for 2010, the survey finds, with increases in the mid-to-high teens. United and WellPoint are also pushing through double-digit hikes, Fidel says. Cigna, meanwhile, appears to be pricing below trend and will likely gain market share, Fidel notes.
*Corrected (Jan. 7, 2010) to reflect that premium increases presented are after benefit buydowns.
The good news is that U.S. healthcare spending growth slowed to 4.4% in 2008, down from 6% in 2007 and the slowest rate of growth in nearly 50 years, according to data from the Centers for Medicare & Medicaid Services. The bad news is that the main reason for the slowdown was the recession; healthcare costs still rose faster than GDP, which was up 2.6% in 2008. So if the issue is excess cost growth in healthcare (see prior post), 2008 was better than the past 40 years but still a problem — especially since healthcare’s share of GDP tends to spike during and immediately following a recession; in 2008, healthcare’s share of GDP rose 300 basis points to 16.2%, compared to a 100 basis point increase in each of the prior three years. Overall, U.S. healthcare spending hit $2.3 trillion in 2008 or $7681 per person, CMS reports.
You can really see the impact of the recession in consumer out-of-pocket spending, which rose just 2.8% in 2008, compared to 6% in 2008. Another category impacted by tight consumer purses strings — prescription drug costs rose 3.2% in 2008, compared to 4.5% in 2007. In contrast, federal government spending rose 10.4% in 2008, compared to 6.6% in 2007; the federal share of national healthcare expenditures rose 200 basis points to 25% in 2008 (tied partly to stimulus spending), while the state and local government share fell 100 basis points to 17%. We asked for more government involvement, and so we’re getting it.
The Medicare Advantage program will survive, but it will be much smaller and stingier than it is today. While some projections suggest that Medicare Advantage membership will fall substantially, CRG estimates at worst-case decline of 4 million lives following reform. Given that the full impact of reform won’t be felt until 2014 (and assuming the likelihood of gains in some product offerings offsetting losses in others), CRG estimates a net loss in lives of about 2 million post-reform.
As of year-end 2009, there were about 11 million Medicare Advantage members, accounting for more than 20% of Medicare enrollees. The CRG report also relays some interesting findings from Gorman Health on the likelihood of regional variation in Medicare Advantage bids under reform:
For example, in a market such as Portland, OR – where FFS costs are 80% below the national average – bids would likely be greater than or equal to FFS. However, in a market such a Miami, FL – where FFS costs are 60% higher than average — bids could be up to 25% lower than FFS. Markets such as Los Angeles, New York and Chicago are expected to be right around FFS, Gorman says.
John Gorman of Gorman Health Group commenting on whether Medicare Advantage plans will be able to survive when reimbursements are reduced to around 100% of traditional fee-for-service Medicare:
The way I like to think of it for us old-timers is that back in the 90s…the plans were paid 95%, and there were plenty of companies that were making money back then. So if the worse case scenario is we get cut down to parity with fee-for-service we’re still five points ahead of where we were in the 90s. And in an industry that makes largely 3% margins that doesn’t suck.