Insight, analysis & opinion from Joe Paduda
Submissions for this week’s edition of HWR are due Wednesday at 9 am est -. Health care policy, infrastructure, technology, admin, managed care and insurance bloggers are invited to send in their best of the last two weeks; I’m aiming to get this version up by the end of the day tomorrow.
Coventry’s Q1 2006 earnings call did not provide any insights into the progress, results, or future of the workers comp sector. While WC accounts for over $200 million in revenue for the managed care company, it drives a disporportionate amount of profit (network business is really profitable, and a big chunk of their business is PPO for WC)
Here’s the historical perspective. Coventry Chairman Dale Wolf had previously suggested FH’s workers comp business would produce a $240 million top line in 2006. Given results to date, increasing price pressure on workers comp networks and bill review entities, and the growing likelihood that First Health will lose workers comp network business, I’d be surprised if FH produces anywhere close to $240 million in revenue. And, Q1 numbers don’t do anything to convince me otherwise.
Here’s the detail. Revenue for First Health’s workers comp in 2005 was $53.7 mm in Q1 (corrected for acquisition timing), $53.65 in Q2, $50.7 in Q3, $52.94 in Q4 and $51.43 in Q1 2006. Comparing this last quarter with the same quarter in the previous year, WC revenue dropped 4.3%. To hit $240 million for the year, FH will have to average $62.9 million per quarter for the remainder of the year. That’s a 21% increase per quarter over the prior year.
There are a couple other factors that aren’t helping. First, the ongoing search for a leader for the WC sector is well into its second year.
Second, there is considerable capital flowing into the WC managed care space from private equity firms and product development from mainstream health plan companies. The combination of innovative approaches to managing WC medical expense and the purchasing power of the Aetnas and UnitedHealthGroups will make this sector even tougher in coming quarters.
Meanwhile, specialty managed care companies are hollowing out network revenue from underneath as First Health customers increasingly turn to experts to manage PT, drugs, and radiology, as well as networks in individual states.
Coventry continues to deliver strong financial results across the board, with medical trend rates appearing to stabilize at about 8% and premium increases for Q1 somewhat above that rate. Overall membership growth is projected to be in the 1% – 3% range, with new employer customers are buying less-rich benefit plans and members at existing employer customers are shifting to less-rich plans (if multiple plan options are offered).
Part D sales efforts have been succesful, with 529,000 members enrolled to date, $180 million in revenue and margins somewhat better than expected. The growth was in part due to Coventry’s partnership with Medicare Supplement insurers, using the insurers as a distribution channel. Part of the $180 million was $50 million from CMS risk share payments.
The First Health business is producing the desired results although there has been strong pressure on the commercial plan part of FH. Revenues on the workers comp side were $51,425 million for the quarter, down slightly from the previous quarter’s $52,953 million. This is not unusual in the WC network and bill review business, as it tends to be somewhat cyclical.
Of note, Coventry Chairman Dale Wolf had previously suggested FH’s workers comp business would produce a $240 million top line in 2006. Given results to date, increasing price pressure on workers comp networks and bill review entities, and the growing likelihood that First Health will lose workers comp network business, I’d be surprised if FH produces anywhere close to $240 million in revenue.
Their failure to name a leader for the WC sector is not helping.
There were several questions about medical costs, trend rates, and drivers thereof. Uinlike other health plans, Coventry seems to be convinced that trend rates will not decrease, and will remain in the 8% range. When pressed to describe the positives and negatives, Coventry execs said that pharmacy is easier to address than in 2005 due to shift to generics, and biotech injectables continue to be problematic. On the big drivers, they see no big challenges with hospitals and physicians.
Members of Swiss insurance plans living in the Basel region will be able to go to Germany to get their care, under a pilot program announced by the Swiss government. For those unfamiliar w the health systems in the two countries, both have mandatory coverage through licensed insurers and mostly private providers. Recent changes in German laws have enabled primary care and some other providers to more fully compete for patients.
The driver behind the new program is, you guessed it, cost containment. The Swiss are faced with cost increases of (gasp) 5.6 percent this year, and are desparate for solutions to this crisis. In addition to the cross-border care, the Swiss are also negotiating for lower rates on prescription drugs (what an innovative idea!) and further encouraging the use of generics.
The consensus is that there is an oversupply of physicians in private practice in Germany, thus they may be less expensive than their Swiss cousins.
Now here’s the interesting part. The Swiss health care budget is about 11.1% of GDP; the German budget is 10.7%. (Pikers, you say, we Americans are over 16%! ) I find it kind of morbidly fascinating that Swiss health care planners think they may actually save a few francs by sending patients across the border, into a country with a demonstrably “sick” health care system, one that has not done any better job of delivering quality care at a low cost.
Now if they were going to send their patients to India, now they might be getting somewhere.
In fact, that’s not a bad idea for some budding young insurance Entray-pra-noor here in the US of A. And I’m only half joking.
Despite the huge influence of managed care and third-party payers in health insurance, about 10% of physicians work on a cash basis, wherein patients pay them directly for services rendered. Most of these docs are in the primary care specialties, where patients place a premium on face-to-face interaction,and where fees are generally manageable for the merely well-to-do.
I would not expect this trend to spread, as many of the more lucrative specialties have a relatively high per-procedure cost, thereby making them unaffordable for most folks without insurance.
Well, are workers comp rates softening, hardening, or just right?
According to a study released at this year’s annual RIMS conference (held in Honolulu…), the market is softening. I’m not sure I buy that, and here’s why.
There are lots of moving pieces here that all have an impact on insurance rates: prior year losses; medical cost trend rates; expectations of losses for the coming policy year; claims volume projections; claim cost projections; equity market investment returns; interest rates; the amount of free capital in the market; etc.
So, one would need a supercomputer or really good ouija board to consider all these factors. Lacking either, I’ll use the trusty educated guess to prognosticate on the future of rates…
Workers comp rates are down about 3% over prior year renewals. This is due to more favorable investment returns (equity markets are up as are interest rates); a significant improvement in loss ratios in California (home to about 17% of the nation’s WC exposure); an expectation that reforms in Texas will significantly reduce costs in that key state; concern about potential claims for property and liability from past and future hurricanes (soaking up capital that could be used to write WC) and perhaps most significant, the continuing decline in claims frequency.
All these factors make for a relatively rosy outlook for comp. In fact, coupling the legislative and regulatory changes with the decline in claims frequency, one could argue that rates should be substantially lower than they are today.
UPDATE – One of the most thoughtful, well-written, and best pieces on what health insurance is, what it ought to be, and the different philosophies about same was written by Malcolm Gladwell of The New Yorker last year and subsequently posted by Marc Kashinsky.
Matt Holt posted a review/commentary/expansion on the Gladwell piece, once again demonstrating he knows his stuff.
Mr. Gladwell delves into the depths of ‘moral hazard’ and its role in the Bush Administration’s health care policy thinking, as well as its impact on individual decisions about care.
Re the latter, here is one of the more striking passages.
“Sered and Fernandopulle tell the story of Steve, a factory worker from northern Idaho, with a “grotesquelooking left hand–what looks like a bone sticks out the side.” When he was younger, he broke his hand. “The doctor wanted to operate on it,” he recalls. “And because I didn’t have insurance, well, I was like ‘I ain’t gonna have it operated on.’ The doctor said, ‘Well, I can wrap it for you with an Ace bandage.’ I said, ‘Ahh, let’s do that, then.’ ” Steve uses less health care than he would if he had insurance, but that’s not because he has defeated the scourge of moral hazard. It’s because instead of getting a broken bone fixed he put a bandage on it.”
Print it, stick it in your “to be read” file, and absolutely read it.
If consumerism is going to help reduce health care cost inflation, we’ll need two things – information and appropriate financial incentives. Actually, we’ll need another ‘thing’ – consumers will need the intelligence and expertise to be able to make the correct decisions when (or more likely if) reviewing information about conditions, procedures, outcomes, costs, side effects, providers, facilities, and alternatives. That’s a tough one…but I digress.
So far, the information has been sorely lacking, in part because it’s just so massive it’s hard to put it together, in part because the Feds won’t give out any data on the largest payer on the planet, Medicare, and in part because providers are really really reluctant to sign on to anything that might reveal they aren’t individually perfect.
OK, so we’re not quite there yet in the information department. What about financial incentives? We’re a lot further along there, aren’t we? Well, aren’t we?
Nope. For two reasons.
Continue reading The two reasons consumerism won’t solve the health care cost problem
Rather than do the ‘reinvent the wheel’ thing, I’ll just refer you to other folks who have been “fact checking” the Administration’s claims about the 30 million who have “signed up for” Medicare Part D.
The net is this – out of the 21.3 million eligibles (not covered under some other Medicare or other Rx program), a bit over one-third have signed up for stand-alone Part D.
Matt Holt replays a Wall Street Journal article that (finally!) breaks down the actual enrollment stats by source (something Kate Steadman, Matt, and I have been blogging on for months…).
This makes me nuts because it will be used by some to make the point that governmental approaches to health care coverage do not work. And in this case, they’ll be dead on.
Work Comp insurer Texas Mutual has launched their network initiative, partnering with Concentra on their private-labeled “Texas Star Network Option”. For now, the network will only be available to employers in the Austin, San Antonio, DFW and Houston metro areas, but expectations are the coverage area will expand significantly in the near future.
Texas Mutual has prepared excellent powerpoint presentations for employers employees and agents; anyone interested in an overview of the impact of the new legislation and regulatory changes would be well-served to review the presentations.
While Concentra’s network includes thousands of providers in Texas, Texas Mutual claims to have selected only certain providers for the Texas Star Network. One hopes this is the case, as the best feature of many workers comp networks is their ability to exclude docs who don’t get workers comp.
