The company reported benefits from the recent corporate tax reform bill. Anthem also increased medical enrollment over the previous year.
Anthem beat Wall Street expectations with a quarterly profit report showing 2017 fourth-quarter net income was $4.67 per share, including a net positive adjustment items of $3.38 per share related to a one-time, non-cash deferred tax benefit from the recenttax reform passed by Congress.
Operating revenues grew 5.8% year-over-year to $89.1 billion, and adjusted net income was $1.29 per share. Medical enrollment was up overall for the year, despite a decline in the fourth quarter.
Anthem raised its quarterly dividend by 7.1% to 75 cents per share and said it expects 2018 adjusted earnings to exceed $15 per share. Wall Street analysts had predicted earnings just over $14.
About $2 per share in the forecast is attributable to the benefits of corporate tax reform, noted Gail K. Boudreaux, president and CEO of Anthem. The company presented its fourth quarter earnings in a recent webcast.
“We are pleased with our 2017 performance, which is the result of improved execution in all areas of our business and an increased focus on aligning strategic investments and capabilities to more effectively meet the changing needs of the more than forty million consumers we are privileged to serve,” Boudreaux said. “Moving forward, we will continue to leverage our broad business portfolio and extensive care provider, consumer and analytics capabilities to deliver high quality healthcare solutions as we work to create a healthcare system that is more affordable and simpler to navigate for all Americans.”
Medical enrollment totaled approximately 40.2 million members at December 31, 2017, an increase of 325,000 members, or 0.8%, from 39.9 million at December 31, 2016. That overall increase came even though Medical enrollment declined by 13,000 lives sequentially during the fourth quarter of 2017. The enrollment declines in the Individual business line were partially offset by growth in the Medicare, Medicaid, and Local Group self-funded businesses.
Commercial & Specialty Business enrollment increased by 278,000 medical members as the Company experienced growth in both self-funded and fully-insured Local Group businesses, partially offset by a decline in membership in the National and Individual businesses. Enrollment also grew by 47,000 in the Government business as growth in Medicare was partially offset by a decline in Medicaid enrollment.
Operating revenue was $22.4 billion in the fourth quarter of 2017, an increase of $1.0 billion, or 4.5%, versus the $21.5 billion in the prior year quarter. The growth in revenue reflected premium rate increases to cover overall cost trends, Anthem reported.
“Additionally, the increase was driven by higher enrollment in Medicare and both Local Group insured and self-funded businesses. These increases were partially offset by the impact of the one-year waiver of the health insurance tax in 2017,” the company reported.
The benefit expense ratio was 88.6% in the fourth quarter of 2017, an increase of 140 basis points from 87.2% in the prior year quarter.
“The increase, as expected, was largely driven by the impact of the one year waiver of the health insurance tax in 2017,” the company said. “The increase was partially offset by improved medical cost performance in the Individual and Local Group businesses.”
For the full year 2017, underlying Local Group medical cost trend was approximately 6.5%. The company is updating the reporting of its underlying Local Group medical cost trend in 2018 to reflect the "allowed amount", or contractual rate, paid to care providers. The previous methodology was based on the "paid amount", which is the "allowed amount" less copays and deductibles.
As a result, the company anticipates Local Group medical cost trend will be in the range of 6.0% +/- 50 basis points in 2018. If 2017 was calculated on a consistent basis with the updated methodology in 2018, Local Group medical cost trends would have been approximately 5.5%.
These are some other results in the quarterly report:
Days in Claims Payable was 39.4 days as of December 31, 2017, a decrease of 1.1 days from 40.5 days as of September 30, 2017.
The SG&A expense ratio was 15.1% in the fourth quarter of 2017, a decrease of 10 basis points from 15.2% in the fourth quarter of 2016. The decrease, as expected, was primarily driven by the impact of the one year waiver of the health insurance tax in 2017 and the impact of fixed cost leverage on operating revenue growth. These items were partially offset by the impact of increased investment spend to support growth initiatives and an increase in incentive compensation expense.
Operating cash outflow was $1.3 billion in the fourth quarter of 2017, bringing full year 2017 operating cash flow to $4.2 billion, or 1.1 times net income.
During the fourth quarter of 2017, the Company repurchased 1.8 million shares of its common stock for $362 million, or a weighted-average price of $205.41. During the full year 2017, the Company repurchased 10.5 million shares of its common stock for $2.0 billion, or a weighted average price of $189.93.
Doctors are ordering more advanced laboratory and genetic tests than ever before, and the reimbursement cost can hit health plans hard. Expenses can be cut without harming patients, one expert says.
Health plans could improve profitability by paying more attention to the laboratory tests they pay for, says Russel E. Kaufman, MD, chief medical officer of Kentmere Healthcare Consulting Corporation, which provides laboratory and genetic testing utilization management for health plans.
A practicing physician in biomedicine for 35 years, Kaufman previously served as chief of hematology/oncology and vice dean and vice chancellor at Duke University, and now specializes in deep analytics of insurance company lab expenditures.
The good news, he says, is that health plans can save money without shortchanging their customers on needed laboratory or genetic testing.
Health plans can cut their testing expenditures by 10% to 20% with better guidance to physicians and improved internal reviews, says Kaufman.
The key is to identify exactly what testing the health plan is paying for, he says.
"The goal isn't just to have the health plans make more money by finding another way they can say no to testing," Kaufman says. "The goal is to have the whole system work better so that costs are lower, everyone saves money, and patients get the testing that they need and from which they can benefit. Finding that point where a health plan is spending what it should, but not wasting money on testing that does not yield any real benefit for the patient, is the challenge here."
Significant sums are wasted on testing.
Medicare lost hundreds of millions last year on inappropriate urine, genetic, or heart disease tests. One analysis found that spending on urine screens and related genetic tests quadrupled from 2011 to 2014 to an estimated $8.5 billion a year
Kaufman's company begins its work with health plans by asking for a massive data dump and then looking for potential cost savings.
"We take that data and dice it and slice it in ways that health plans really don't do," Kaufman says. "You would think health plans would have pretty deep analytics around all this, but that's not their expertise. They need help in determining exactly where they're spending their money on laboratory costs."
Kentmere has alerted some health plans to a spike in physician orders for hereditary testing genes predictive of breast cancer, beyond the BRCA1 and BRCA2 that are most commonly ordered for that purpose.
Identifying test spend is key
"Health plans need to understand where the money is going in relation to laboratory and genetic testing, and more than just which tests are ordered. They need to understand things like what percentage of their total spend is on that test, what percentage of their reimbursement that represents, what percentage is rejected," Kaufman says.
"When a health plan understands those numbers, they might realize that a bigger percentage of their total spend than they ever realized is on a certain test. They can use that information to develop internal policies about how they decide which tests to just approve and which tests require internal approval before it is preauthorized," he says.
Internal analytics are one thing, but health plans also can benefit by comparing their laboratory expenditures to those of other insurers, Kaufman says.
He sees trends in ordering patterns from one company to another, but outliers indicate either a plan with the opportunity to reduce costs or a plan that has implemented better approval systems.
"One of the questions they have is how much internal bureaucracy should be devoted to internal review and approval of testing," Kaufman says. "They often don't have a firm grasp on what everyone else in the industry is doing in that regard, hoping their own systems are tight enough to avoid wasting money and appropriate to ensuring their customers get the testing they actually need."
The uncertainly mostly involves testing related to genetics and other advanced areas in which medicine is evolving at a fast pace, Kaufman notes.
Testing policies
The protocols for ordering more routine tests have been established in the medical community and it is easier for health plans to set review and approval policies. Testing standards for the newer and more advanced screening are not as clear, but those tests also can be among the costliest.
"Genetic testing is an emerging area and very few health plans have internal expertise in genetic testing," he says. "So they mostly download policies from the Blue Cross Blue Shield associations and then they internally might modify them a bit to conform to the culture of what the doctors in their region might expect. But we find that in trying to adapt those policies to these new tests, the doctor may have a 65-page policy that must be reviewed before ordering the lab work."
No physician has the time to study a policy like that, so the policy becomes irrelevant, Kaufman says.
Physicians use their best judgment to determine whether they think the test is appropriate, and the health plan has lost the opportunity to guide that decision, he says.
Policies should be simple enough that the clinician can quickly determine what parameters determine whether the health plan will pay for it, he says.
"That improves the efficiency of the process because clinicians aren't ordering tests that are going to be rejected, appealed, and re-appealed. All that takes time and carries an expense," Kaufman says. "Many times the patient is caught up in the middle of all this. If policies can be clear, accessible, and transparent, it improves the system for everyone."
Healthcare CFOs are facing demands for growth at the same time payers are looking for lower costs. Proper management of capital resources is becoming the key to making it all work.
Optimizing capital resources will become a top priority as CFOs face another year of financial pressures from changing payer and consumer dynamics. Volume and price pressures will continue to strain operating margins and outstrip available resources.
Hospitals and health systems will struggle to find enough capital to fund information and clinical technology, as well as expansion of outpatient facilities and replacement of aging facilities, says Laura Jacobs, managing principal of GE Healthcare Partners.
"There’s no letup in sight in the continued requirements to balance capital requests," Jacobs says. "Many states are facing more scrutiny of Medicaid dollars and on the Medicare front. Many health systems are already struggling to breakeven on Medicare revenue and that has become the mantra of many healthcare CFOs, trying to remain functional and breakeven on Medicare. But many organizations are still 20% off reaching that goal."
The unpredictability of health insurance and payment models will combine with pressure to reduce base rates on commercial contracts, forcing systems to find greater efficiencies through patient care redesign, utilizing high-value supplies and outsourced services, and considering performance-based contracts with vendors, Jacobs says.
Payers continue to put pressure on providers to accept less in reimbursement or put more money at risk with performance-based payment, she says.
"There is no opportunity for CFOs to just increase rates. Most payers are looking at no room to increase, or even decreasing rates," Jacobs says. "That pressure is going to continue and has no signs of abating. The only way to generate improved revenue is to do better on these value-based payment methods, whether that is reducing readmissions, or improving quality indicators."
CFOs must look to creative asset management to optimize capital resources, Jacobs says. She suggests these top five strategies:
Repurpose underutilized or older facilities to meet demand for postacute, rehabilitation, or behavioral health services.
Create capacity command centers to leverage data and analytics to ensure that health systems are effectively utilizing inpatient and outpatient facilities. "This is a very capital-intensive environment between the need for information technology and the replacement of aging facilities, and the need to expand their footprint in the outpatient arena," Jacobs says. "There is no end in sight for the need for capital to help transform organizations, or even to maintain existing facilities and operations. CFOs and leaders of health systems need to be thinking about how to optimize the capital they have.
Consider how much room there might be for improved efficiency and better resource management, she says. For example, an organization that is currently operating relatively painlessly at 80% or 85% occupancy should look at issues such as improved technology, managing bed load and bed mix, and improving throughput to reach 90% occupancy, she says.
Use technology (i.e., telemedicine) more effectively to reduce the stress on physical facilities by reducing the need for patients to come to them. Creative operations can maximize the utility of those facilities. "Do we really need all this space, or can we do smarter space planning? Can we look at patient flow and use our existing facilities better to avoid building that new patient tower?" Jacobs says. "Many vendors will help you preserve the organization’s capital through asset management or providing equipment that can be leased back to the organization, so that the health system can focus on how [it's] operating and delivering care rather than sinking more capital into it. There are more opportunities to do that today than ever before."
Consider using philanthropy to support capital needs for programs and facilities that may have minimal or no immediate financial returns but are critical to improve health outcomes or provide a more patient-friendly environment.
Jacobs expects to see continued growth and integration. That will require focusing on simplifying decision-making and governance, developing systemwide clinical operating structures, streamlining operations, and leveraging assets and information technology investments.
There will be continued focus on how organizations become relevant and even indispensable in their market and, in many cases, that means grown and continued acquisitions, she says. This is true on both regional and national levels.
"The challenge is, as organizations are growing horizontally and vertically, to create efficiencies out of that. In many cases people are just pulling systems together and not truly looking at how they are going to integrate corporate functions and support functions to benefit from the improved efficiency that can be gained by scale," Jacobs says. "There is still a lot of room for improvement for realizing efficiencies with scale. It can be done, but it requires some hard choices about what decisions are centralized, which ones are decentralized, where to prioritize clinical resources, and creating streamlined decision support structures. That’s where hard work needs to happen."
Hefty tax on generous health plans delayed two years. A repeal may be more likely than ever.
The tax on top-tier health plans offered by employers was delayed in the spending deal that recently ended the government shutdown, with opponents saying this is a major achievement and a step toward eliminating it altogether.
Congressional leaders and President Trump reached a deal that includes a two-year delay for the Cadillac tax, a component of the Affordable Care Act that levies a 40% tax on generous health plans offered by employers. The tax is supposed to prevent overuse of the health system by discouraging employers from giving workers health insurance plans so generous that they seek healthcare services too freely.
The tax has been opposed by unions, employers, and consumer groups, and with this most recent change it won't go into effect until 2022.
Alliance to Fight the 40/Don't Tax My Health Care has strongly opposed the tax and applauded Congressional leaders for including the two-year delay. The move will help to protect health care coverage for the more than 178 million Americans with employer-sponsored health insurance, says James A. Klein, president of the American Benefits Council, part of the coalition.
“We applaud Congress for delaying the 'Cadillac Tax' that is driving up health care costs for millions of Americans," Klein says. “Employer-sponsored health coverage is efficient, effective, and stable. Taxing health benefits would compel employers to stop offering wellness programs and on-site clinics and to reluctantly ask employees to bear higher out-of-pocket costs. We will continue efforts to fully repeal this onerous tax and appreciate that Congress has passed this two-year delay as a down payment for full repeal.”
Klein notes that repealing the tax has strong bipartisan, bicameral support led by Sen. Dean Heller (R-NV), Sen. Martin Heinrich (D-NM), Rep. Mike Kelly (R-PA), and Rep. Joe Courtney (D-CT).
The health plan denies payment if a patient goes to an emergency department and the diagnosis is not a true emergency.
Patients' lives are at risk with Anthem's policy denying coverage for emergency department visits that turn out to be something other than a real emergency, and it is only a matter of time before someone dies as a result of the policy, a leading emergency department physician says.
Anthem BlueCross BlueShield is only likely to abolish the rule after the death of a patient who was afraid to go to the ER for fear of being saddled with paying the entire bill out of pocket, says Ryan Stanton, MD, an emergency medicine physician and CEO of Everyday Medicine in Lexington, Kentucky.
It also prohibits insurance companies from requiring patients to seek prior authorization before seeking emergency care.
The prudent layperson standard is more than just a good idea. It is codified in the Patient Protection and Affordable Care Act and specific laws in in 30 states.
Answers sought
ACEP recently launched a new video explaining how Anthem's policy hurts patients. In a letter, Sen. Claire McCaskill (D-MO) has asked Anthem's CEO to provide answers and access to internal documents that would help consumers and healthcare providers better understand how the health plan applies the policy.
Anthem has declined to release its list of which diagnoses it will not pay for in the ER. There apparently has been no response to the senator's request, and Anthem declined to comment for this article.
"Patients are not physicians," said Sen. McCaskill in the letter. "I'm concerned that Anthem is requiring its patients to act as medical professionals when they are experiencing urgent medical events."
Anthem has said in the past that the rule would only apply in egregious cases, when a patient incurs ER expenses for an issue that is clearly not an emergency, but Stanton says emergency physicians are seeing examples of how that is not true.
Determining what counts as an emergency
"Anthem continues saying it's about hangnails and the common cold, but I have personally talked to three people who were denied coverage for symptoms that could have been something much more serious. Two were for belly pain and one was a person with a headache so bad they thought they were having a stroke," Stanton says. "These are not all the kind of cases that they're trying to play off as the PR reason for doing it."
One of those patients was a young woman who went to an ER thinking her appendix had ruptured, accompanied by her mother whose appendix ruptured at about the same age. The younger woman had nausea, right lower quadrant pain, and vomiting that the mother said was just like her symptoms. When the cause turned out not to be appendicitis, Anthem denied coverage for the ED visit, Stanton says.
"She told me afterward that she would never go to an ER again. She said, ‘You'll have to drag me to the ED on my death bed because I'm afraid of these types of prices and them denying the charges,' " he recalls. "That's what I'm afraid is going to happen more and more. Anthem gets to deny coverage and scare all their customers away from the ER, which will eventually result in bad things."
Right lower quadrant abdominal pain with fever, nausea, and vomiting, will be appendicitis about 5%–10% of the time, he notes.
"With numbers like that, it's only going to take [X] number of patients before someone dies as a result of this Anthem policy," Stanton says. "That's just simple math and a matter of time."
Claim denials
In Kentucky alone, Anthem has denied over one thousand claims in the past seven months, Stanton says.
Some Kentucky hospitals are reporting several hundred denials, and some can't even quantify them because their reimbursement systems are not set up to capture bills denied for this reason, Stanton says. They just write off the loss.
Anthem BCBS has implemented the policy in Georgia, Kentucky, Indiana, Missouri, New Hampshire, and Ohio. Stanton worries that the policy could be applied in more states and by additional health insurance companies.
"This is a policy that they're not going to change as long as they're sitting on the stacks of money it brings in," Stanton says.
Shorter sign-up period and lack of advertising did not trim ACA exchange enrollment. But the uninsured rate may increase in 2018.
The percentage of American adults without healthcare insurance remained steady in the last quarter of 2017 after rising earlier in the year, according to a recent Gallup poll. The rate had risen 1.3% as insurance companies stopped selling plans in some regions, and some consumers responded to rising insurance premiums and deductibles by forgoing insurance altogether.
The uninsured rate held steady at 12.2% in the last quarter, up from 10.9% in the same quarter of 2016—the lowest rate of uninsured Americans since Gallup started measuring the rate in 2008.
Gallup notes that the Trump administration practically eliminated the advertising for ACA exchange signups, reducing the budget by 90%, while also cutting the sign-up period by half. Those actions apparently had little or no effect on signups, Gallup says, because the number of people buying coverage on the ACA exchanges for 2018 was almost the same as for 2017.
The increase of 1.3% earlier in the year still means an additional 3.2 million people were uninsured in 2017 over 2016.
“Despite the uninsured rate rising in 2017, it remains well below its peak of 18.0% measured in the third quarter of 2013, prior to the implementation of the ACA's healthcare exchanges and the requirement that most adults have health insurance or be subject to a fine, commonly known as the individual mandate,” Gallup reports. “The uninsured rate rose for all demographic groups in 2017, with the exception of those aged 65 and older, all of whom qualify for Medicare coverage. It increased most among young adults, blacks, Hispanics and low-income Americans. Importantly, the uninsured rate among adults aged 18-25 rose by 2.0 points in 2017. Young adults serve a critical function in healthcare markets because their low usage of healthcare helps offset the higher costs of insuring older Americans.”
Gallup found that the uninsured rate rose more in 2017 for blacks and Hispanics than for the population overall, a 2.3% and 2.2% increase respectively.
“By far, the biggest change in 2017 was the decline in the percentage of Americans purchasing their own plans, likely through ACA healthcare exchanges. In the last quarter of 2017, 20.3% of Americans said they bought their plan themselves, down 1.0 point from 21.3% at the end of 2016,” Gallup reports. “This decline in the percentage of Americans who pay for their own coverage marks a reversal of the trend seen since the ACA's individual mandate took effect in the third quarter of 2013. Between then and 2016, the percentage of adults with coverage via self-paid plans had grown 3.7 points.”
The Gallup report predicts an increase in the uninsured rate in 2018, driven by the repeal of the individual mandate and continued increases in premiums and deductibles.
“Young adults will be most likely to go without coverage, meaning that they will no longer help offset the costs of older, less healthy adults—which will drive up premiums even more,” the report says.
CMS recently announced a new version of its bundled payments program, with more incentives to participate. Doctors can qualify for higher payments under MACRA, an advantage for hospitals looking to affiliate with physician groups.
A new bundled payments program should draw more hospitals in with a structure that limits potential financial loss while increasing the potential gains. The program follows promises by the government that it would incentivize both highly efficient and less-efficient providers with its new pricing methodology.
The new Bundled Payments for Care Improvement Advanced (BPCI Advanced) program from the Centers for Medicare & Medicaid Services is a second-generation version of the BPCI program. BPCI Advanced is a voluntary program that offers a single retrospective bundled payment covering services within a 90-day clinical episode.
Program overview
A clinical episode begins with an inpatient admission for an inpatient procedure or the start of the outpatient procedure, continuing for 90 days after discharge or the procedure.
Participants may participate in up to 29 inpatient clinical episodes and three outpatient clinical episodes (percutaneous coronary intervention, cardiac defibrillator, and back and neck except spinal fusion). CMS provides target prices in advance, measured against the total Medicare fee-for-service spending and services during the clinical episodes.
CMS has refined the program to make bundled payments more appealing to healthcare providers, says Keely Macmillan, general manager of BPCI with Archway Health, which assists healthcare providers with bundled payments.
"Providers should be encouraged about the new BPCI Advanced program, as it provides more opportunities for upside revenue. CMS will now provide a limit to how much downside a provider can be responsible for by providing a 20% stop-loss of their total program size," she says. "Full target pricing details are still forthcoming from CMS, but we expect the new pricing model to be more inclusive."
BPCI Advanced also comes with a new Episode Initiator focus. BPCI Advanced will qualify as an Advanced Alternative Payment Model (APM) under the Quality Payment Program adopted as part of the Medicare Access and CHIP Reauthorization Act (MACRA). Physicians participating in BPCI Advanced may earn MACRA's Advanced APM incentive payments because they take on financial risk.
"CMS is prioritizing physicians this time around, and BPCI Advanced now provides the first chance for specialty providers to qualify for Advanced APMs under the MACRA Quality Payment Program," Macmillan says. "In the original BPCI model, specialists proved to be very successful at lowering the costs per episode and improving outcomes for patients."
A revenue opportunity
The new BPCI structure means that, more than ever, CFOs should look at bundling as a revenue opportunity, says Clay Richards, CEO of naviHealth, a Cardinal Health company that assists hospitals with BPCI.
"We think this is a pretty significant revenue opportunity over the next several years. This is a very positive, strong signal from the administration that there is going to be an emphasis on value-based care and a shift away from fee-for-service," Richards says. "Hospitals are going to continue to be nudged in the direction of getting paid for value rather than getting fees for service."
BPCI Advanced participants can be "conveners" or "non-conveners." Conveners are companies such as Archway Health and naviHealth, which take on risk for downstream entities as they facilitate coordination among episode initiators. Non-conveners are acute-care hospitals or physician group practices that initiate episodes but do not take risk for downstream entities.
"We think there will be significant interest from the hospital community to participate in this program," Richards says. "You can select the episodes and the market you want to participate in, so you're not mandated to move forward but you're encouraged to be thoughtful and selective in how you move into value-based care. Hospitals are not being told they have to do this, but they're being given incentives because, ultimately, this is where everything is going, and hospitals need to start finding the best path to get them there."
Previous BPCI participants have proven that both large urban hospitals and smaller rural facilities can be successful with bundled payments as long as they are willing to make the right investments, Richards says.
"Our recipe has been a pretty deep investment in clinical analytics. You have to be able to digest a large amount of clinical and claims data to understand what the opportunity looks like, and you have to invest in the technology and analytics to be able to execute against the program," Richards says. "You also have to have an organizational commitment to some real clinical care redesign, especially for what happens when patients leave the hospital."
Richards notes that the eligibility for the MACRA Quality Payment Program will be beneficial to hospitals as they look for different ways to affiliate with physicians.
"Hospitals will choose to participate as a way to drive the patient experience and differentiate yourself in the market, because quality and the patient experience will improve in this program," he says. "The ability to qualify as an APM will let you build physician alignment models around the program, and now the biggest reason to participate is the financial opportunity it presents to the hospital. To be successful in this program you have to reduce variation and costs in the post-acute side, not so much in the acute setting where you may feel like you've maxed out your strategies, so hospitals can look for opportunities to save money outside the four walls of their hospital."
The individual health insurance market is still a slog for health plans, but health plans remain profitable overall because of their group coverage sales.
Despite all the talk about how the Affordable Care Act and recent revisions to the healthcare law have challenged health plans to remain profitable on the individual market, insurers are reporting good financial results and are prospering.
That's because their bread-and-butter business, group health insurance provided through employers, is largely unaffected by the turmoil in the individual market.
More than half of Americans have health insurance coverage paid for by their employers, in whole or in part, and another 40% are covered by Medicare or Medicaid, leaving only around 12% to fend for themselves in the individual market, notes Christina Marsh Dalton, PhD, assistant professor of economics at Wake Forest University's School of Medicine in Winston-Salem, North Carolina.
That means that even health plans struggling to profit in the individual market can succeed overall, Dalton says.
"All the discussion in the news is about the individual market. This is the piece of the industry that wasn't working and was addressed most directly by the Affordable Care Act, and it's the piece that is undergoing so much change right now," Dalton says. "But for the rest of the country who get their insurance through their employers or Medicare or Medicaid, not a lot has changed for them. That's a stable market and that's where insurers can still be successful."
Stock prices for some of the country's health insurance companies outperformed the rest of the stock market in 2017, despite how efforts to repeal and replace the Affordable Care Act created uncertainty for the industry.
A report from the Kaiser Family Foundation, examining insurers' financial data from the third quarter of 2017, found that insurers gained ground in their medical loss ratios, which averaged 81% through the third quarter.
They saw similar improvement in gross margins per member per month in the individual market segment, up to $79 per enrollee in the third quarter of 2017. That figure had been as low as $10 in 2015.
"These new data from the first nine months of 2017 offer further evidence that the individual market has been stabilizing and insurers are regaining profitability, even as political and policy uncertainty and the repeal of the individual mandate penalty as part of tax reform legislation cloud expectations for 2018 and beyond," the Kaiser report says.
"Third quarter financial data reflects insurer performance in 2017 through September, before the Administration ceased payments for cost-sharing subsidies effective October 12, 2017. The loss of these payments during the fourth quarter of 2017 will diminish insurer profits, but nonetheless, insurers are likely to see better financial results in 2017 than they did in earlier years of the ACA Marketplaces," the Kaiser report says.
Industry remains stable and profitable
Dalton expects the insurance industry to remain stable and profitable by relying on the group market.
No matter how unappealing the individual market becomes to insurers, they have the flexibility to quickly pull out when it becomes clear they won't be able to make a profit, she says.
Any legislation that makes them less flexible in that regard could have a far-reaching impact on the insurance industry overall, she says.
"There is no precedent for forcing companies to offer a product, but of course it wasn't so long ago that we also had never seen the government forcing individuals to buy a product, and the individual mandate still went through," she says.
In the individual market, uncertainty is still the primary motivator for health plan strategies in 2018, Dalton says.
Some plans may respond to the uncertainty with more restraint and conservative approaches, she says. Losing the individual mandate in 2019 has many health plan leaders anticipating a significant reduction in membership and revenue, she says.
"Executive orders are also creating uncertainty because health plans can't see those changes coming from very far off—orders like the one expanding association health plans, and the extension of short-term health plans," Dalton explains. "The Trump executive orders are leaning toward creating more diversity of plans, which, on some level, could increase demand. With more plans created, you may have more people signing up because they can find a plan that matches them."
Critics have said the expansion of association health plans could further damage the individual market by siphoning off generally healthy people, leaving only the sickest and costliest consumers to buy insurance on the individual health exchanges.
That could happen, Dalton says, but insurers also will be selling group health plans and could benefit from those as well.
"Those healthy people might not have been interested in buying those ACA-compliant plans because they were so expensive and they didn't think they needed all that coverage, and in 2019 they won't have any mandate forcing them to buy them," she says. "Now those healthy people might have reason to buy a health plan rather than opt out, so there is potential for more purchasing of insurance because insurers can offer plans that healthy people would like more."
Dalton notes that the federal exchanges have seen insurers exiting at a higher rate than the state exchanges, and she suspects that is partly because there is more coordination at the local level.
"If it looks like enrollment is not at the levels the state expected and insurers want to pull out, the state can increase marketing or extend the enrollment period," she says. "Having a locally responsive market seems to help match insurers to buyers more effectively."
With the healthcare industry landscape so uncertain, CFOs are feeling pressure to 'advise on the financial impact every decision an organization makes.'
Healthcare CFOs are increasingly becoming strategic advisors for their organizations, with stakeholders looking to them for answers about how they should best position the hospital or health system.
CFOs are feeling the pressure to trade in their spreadsheets for crystal balls, when what they really want is a good way to integrate long-range financial planning with the tactical cost reductions they are implementing every day.
The changing landscape for reimbursement and the uncertainty over issues such as health insurance legislation mean that there is more focus on the financial impact of every decision made in the boardroom and the C-suite, says Jay Spence, vice president of healthcare solutions with Kaufman Hall, which provides consulting and software solutions to the healthcare industry.
Making the call
"[CFOs] are being asked to determine and advise on the financial impact of every decision an organization makes. They need to be able to project out multiple versions of the future, multiple scenarios," he says. "The idea of making assumptions about the future and then having one forward-looking plan could be done 10 or 15 years ago with a fair amount of confidence, but not now. They're being asked to do that with multiple possible scenarios now."
It is becoming critically important for CFOs to be able to support initiatives-based and scenario-based modeling capabilities around financial planning processes, Spence says. That means being able to set baseline assumptions around market volumes, reimbursement rates, and cost structures.
"That's what they will need to keep operating margins back, maintain a certain amount of capital spend, and have a certain operating margin to support that. All of those things are impacted by the decisions that have to be made on a daily basis, and healthcare organizations are increasingly looking to the CFO for the answers," Spence says. "CFOs are feeling the demand but they are not always sure how they are going to predict the future and make the right call."
The plight of today's healthcare CFO
In the company's 2018 CFO Outlook report, 95% of surveyed healthcare CFOs said they are experiencing increasing pressure to have greater insight into how financial results impact business strategy, and 90% think their organizations should be doing more to leverage financial and operational data to inform strategic decisions.
Cost reductions were the biggest concerns for CFOs heading into the new year, but CFOs also expressed concern that they lacked the proper tools to reduce costs.
Ninety-six percent said that cost transformation is a "significant" to "very significant" need for their organizations today, but only 25% had confidence in the accuracy of results in their existing cost accounting systems.
The lack of tools often results in insufficient processes, Spence says. CFOs are limited in their ability to integrate and make efficient planning and monitoring activities across management levels in their organization, Spence says, noting that approximately half of CFOs indicate that their organizations have outdated processes and insufficient tools for effective financial planning and analysis.
"Many healthcare organizations struggle to link their long-range financial plans to the operational and capital budgets. They don't have that integrated planning process," Spence says. "They need to be able to say, 'Here is our baseline projection as we look ahead, and here is the incremental impact of these various go-forward strategies, whether those are partnerships, new acquisitions, or service line rationalizations. What is the impact if we choose to grow certain service lines or reduce others?' "
CFOs need the ability to model those scenarios dynamically, to have the organization's long- range financial planning influence their short-range tactical decisions, Spence says.
Only 15% of surveyed CFOs say their organizations are "very prepared" to manage evolving payment and delivery models with current financial planning processes and tools, and only 25% are "very confident" in their team's ability to quickly and easily make adjustments to strategies and plans.
Patient-level cost accounting is becoming more useful for CFOs, Spence says, giving them a granular understanding of the cost of providing care across their service lines and where there might be opportunities to improves processes.
CFOs also are working more closely with chief medical officers and other clinical leaders to reduce costs, he notes.
The factors that led CFOs to this position are continuing, with no reason to think they will end soon, Spence notes.
"The cost of providing care is going up at a faster rate than the reimbursement for that care," he says. "The hospital operating margin is very tight now and it's getting even tighter. The integrated financial planning process helps healthcare organizations understand what kind of cost-reduction activities need to take place, in light of the trajectory we're seeing in volume, the reimbursement expectations, and our cost structure."
The lawsuit is the first in response to the Trump administration dropping the subsidies. It asks for damages in the amount of the subsidies it would have received.
In the first of what could become a series of litigation from insurers struggling to make it in the individual market, a Maine insurance co-op is suing the federal government over the decision to end the cost-sharing reduction (CSR) payments that made it possible to provide coverage for low-income consumers.
Maine Community Health Options filed the lawsuit asking for damages in an amount equal to the CSR payments it would have received for 2017, which are not specified in the filing. The lawsuit notes that the Congressional Budget Office estimated about $7 billion in CSR payments would be made to insurers in the Affordable Care Act individual marketplaces in 2017.
The co-op committed itself to participating in the marketplace for 2017 “with the express understanding—based on the plain text of Section 1402 and the Government’s actions in previous benefit years—that, for those plans that required the issuers to reduce cost-sharing obligations of the enrollee, the Government would honor the statutory mandate, i.e., ‘the Secretary shall make periodic and timely payments to the issuer equal to the value of the reductions.’”
The lawsuit, which was submitted by attorney Stephen McBrady, based in Washington, D.C., says the law clearly requires the government to make the CSR payments.
The claim notes that Maine insurance regulations do not permit health plans, such as Health Options, to raise premiums mid-benefit year to cover the cost of losing the CSRs. That means the co-op provided discounts in good faith but then the government did not reimburse it as promised, the lawsuit says.
The Trump administration ended CSRs in late 2017, saying they payments were illegal because Congress never appropriated funds for them. Health Options says the money was promised and business strategies were built around the expectation of payment.
“Regardless of whether Congress appropriated sufficient funds to HHS to make the CSR payments, the government’s statutory obligation to make such payments, and Plaintiff’s right to those payments, remain,” the lawsuit says.
The loss of the subsidies contributed to some health plans raising 2018 premiums and deductibles, which were already on the rise because of high utilization in some cases. Insurers are still legally required to offer reduced cost-sharing in silver-level plans to low-income consumers with incomes up to 250% of the poverty level.
Many health plans bet on the likelihood that the government would terminate the CSR payments and raised premiums accordingly, and others counted on the payments continuing. In some states health plans were told what to assume by state insurance departments.
Some state insurance regulators accepted two sets of rates, one to be used if CSR payments continued and another if the government cancelled them.
