Wall Street Consensus: 2014 Will Be a Big Growth Year for Payers
Since returning from summer vacation I’ve been making the rounds with friends and spies on Wall Street to see what the nation’s checkbook is thinking about the seismic changes coming to our health system starting on October 1. Usually these guys are like long-tailed cats in a roomful of rocking chairs about disruptive events like ObamaCare. But a consensus emerged: 2014 is going to be a big year for health insurers.
Generally speaking, Wall Street analysts and investor types see ObamaCare’s health insurance exchanges and the 8 million uninsured expected to enroll next year as having relatively little influence on payer financial performance in 2014. Even with most red states resisting Medicaid expansion (especially those with the highest rates of uninsurance, like Texas), the money guys see Medicaid and the transition of Dual Eligibles to health plans being the real driver of coverage and margins. They see a tough reimbursement environment in Medicare Advantage, but not enough to derail growth in 2014, and covering an outsize portion of SG&A. So, overall, a big year is coming, and driven by government-sponsored programs.
Analysts agreed there are some clear signals that coordinated care is actually working to reduce utilization, especially in high-profile cohorts like readmissions. They point out medical loss ratio (MLR) trends for all product lines came in below expectations and consistent with continued volume weakness reported by hospitals, with most publicly-traded plans now guiding to a decrease in costs for 2013. No publicly-traded health insurer missed their estimates for Q2 2013, and all beat expectations by at least 20%.
Expecting further weakness in government securities due to another budget crack-up in Congress, some analysts anticipate plans will actually deploy capital in 2014 to achieve longer-term strategic goals more quickly, like acquisitions and investing in ACOs and medical homes. There was complete agreement on a continued long-term trend of payer consolidation, with WellCare’s purchase of Windsor Health Plan last week the latest omen.
Our friends noted that in second quarter the average publicly-traded plan Medicare Advantage MLR was 85.5%, up slightly year over year. Medicaid health plan MLRs actually decreased slightly to 87.5%, and revenue, membership, MLR and earnings all came in better than expected.
At least in our little informal focus group, Wall Street was unanimous: 2014 is going to be a big year for health insurers, with Medicare Advantage covering an outsize amount of plan operating costs, and ObamaCare’s Medicaid expansion and duals transition driving the growth.
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