Radar on Medicare Advantage

Earnings posted by publicly traded insurers for the second quarter of 2020 reflect the continued impact of the COVID-19 pandemic that began in March, with low medical loss ratios (MLRs) driven by depressed utilization that only began to pick back up in June. But some managed care organizations, especially those with Medicaid business in states that are feeling the financial crunch of the pandemic, indicated during recent earnings calls that they are approaching the balance of the year with caution given unknowns about medical costs and potential rate adjustments.

Reporting second quarter earnings on July 30, Molina Healthcare, Inc. estimated that COVID-19 drove an increase in earnings per share of about $1.10 to $1.65, for overall EPS of $4.65. Premium revenue rose 8% from the prior-year quarter to reach nearly $4.4 billion as membership experienced sequential growth of 151,000 (4%), primarily in Medicaid. Specifically, Medicaid membership jumped 5% from the first quarter to 3.1 million, but Molina believes this was due to the suspension of redeterminations and that enrollment stemming from unemployment has yet to fully materialize in managed Medicaid, stated President and CEO Joseph Zubretsky during a July 31 conference call to discuss second quarter earnings.

In its annual release of Medicare Part D payment benchmarks and other bid-related information for the coming plan year, CMS on July 29 reported that the average monthly premium for basic Part D coverage will increase just 50 cents in 2021, while the national average monthly bid amount will continue its downward trajectory, dropping nearly 10% to $43.07.

Tom Kornfield, senior consultant with Avalere Health, explains that relative to prior yearly changes, the reinsurance subsidy — which funds 80% of all Part D costs for beneficiary expenses above the catastrophic threshold — went up more than the bid amount went down. “Essentially what we’re seeing is, plans had been projecting relatively flat or very small increases in the reinsurance, but for next year [CMS] projected a 7% increase in the reinsurance amount,” he says.

Nearly two years after Nebraska voters approved a measure to expand Medicaid, the state on Aug. 1 began the process of enrolling eligible adults for coverage effective Oct. 1. Approximately 90,000 Nebraskans will be newly eligible for Medicaid under the Heritage Health Adult (HHA) program, which will leverage the existing Heritage Health managed care structure by enrolling adults into one of the state’s three contracted managed care organizations. Those MCOs are Nebraska Total Care (Centene), UnitedHealthcare Community Plan of Nebraska and Anthem, Inc.’s newly acquired Medicaid plan from WellCare. The additional Medicaid lives in Nebraska will have a minimal impact to MCO earnings per share (EPS), according to Credit Suisse. “Assuming an even split of lives and a roughly $400 [per member per month payment], we estimate that CNC [Centene], UNH [UnitedHealth Group], and ANTM [Anthem] have a roughly $144 mln annual revenue opportunity from Nebraska Medicaid expansion,” wrote securities...

Missouri voters on Aug. 4 approved a constitutional amendment to expand Medicaid coverage, reflecting a trend of ballot-driven expansion initiatives in recent years that has been accelerated by the COVID-19 pandemic. Missouri is the second conservative state to approve expansion during the pandemic; Oklahoma voters on June 30 narrowly approved a ballot measure to expand Medicaid in that state.

The ballot measure requires Missouri to expand Medicaid to adults between the ages of 19 and 65 with incomes up to 138% of the federal poverty level (FPL) by next July, leaving 12 states — mostly led by Republicans — that have not adopted expansion under the Affordable Care Act (see infographic, p. 6).

✦ The Pennsylvania Dept. of Human Services (DHS) on July 8 named the successful respondents to its latest request for applications to serve some 2.6 million HealthChoices enrollees, but the agency said it is unable to move forward with the selections due to pending protests. Geisinger Health Plan, Health Partners Plans, UPMC for You and Vista Health Plan (AmeriHealth Caritas) were selected for statewide contracts, while UnitedHealthcare was chosen to serve the Southeast region only. At press time, two applicants that were not selected filed protests, noted DHS. Those are likely to be Centene Corp. and CVS Health Corp.-owned Aetna, since both companies bid and did not win any regions, observed securities analyst Steve Valiquette in a note from Barclays Research. This is the third time DHS has tried to reprocure the contracts, which are worth an estimated $13 billion, according to Barclays. Visit https://bit.ly/3j2dwkt.

✦ Walmart Inc. has established a new insurance division that will initially focus on selling Medicare Advantage plans in Texas, although details of the new venture are scant, according to multiple news reports. The insurance agency has been actively recruiting for positions that will allow employees to work from home and/or at a Dallas-based call center beginning in August, according to the Arkansas Democrat Gazette. In a July 7 research note, SVB Leerink securities analyst Stephen Tanal called the move “an incremental, long-term positive” for the publicly traded managed care organizations. He noted that Walmart has a major presence in Texas, and that the MA market share there is “very concentrated in the hands of” UnitedHealthcare and Humana Inc., which has a longstanding Part D partnership with Walmart. Contact Tanal at stephen.tanal@svbleerink.com.