Latest / Becker’s Healthcare Podcast / Jakob Emerson on ACA Subsidies, Medicare Advantage and What Q2 Earnings Reveal

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Jakob Emerson on ACA Subsidies, Medicare Advantage and What Q2 Earnings Reveal · Becker’s Healthcare Podcast

• 0:02
  - GLP ones, Medicare Advantage Headwinds, a Medicaid landscape
• 0:06
  - that looks different
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  - every quarter.
• 0:09
  - Their leadership right now means making durable decisions
• 0:11
  - in an environment that keeps moving, and the
• 0:13
  - organizations pulling ahead are the ones that stopped
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  - waiting for stability
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  - Becker's fifth annual fall payer issues roundtable convenes
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  - Two days of senior level dialogue on affordability,
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  - benefit design, value based care, and the strategies
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  - shaping how care gets financed
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  - football hall of famer, Emmitt Smith. Agenda and
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  - registration at beckerspayer.com.
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  - Click events in the upper right.
• 0:51
  - This is Scott Becker with the Becker's Health
• 0:53
  - Care podcast.
• 0:55
  - We're joined today by Jacob Emerson. Jacob comes
• 0:58
  - to us regularly to talk to us about
• 1:00
  - the payer trends, payer stories that he's watched
• 1:02
  - in the markets.
• 1:04
  - Jacob, let me tee you up and have
• 1:05
  - you take it away.
• 1:07
  - What what's what are you watching currently?
• 1:10
  - Sure thing, Scott. Good to talk with you.
• 1:12
  - So I got
• 1:13
  - two broad topics we could talk about today
• 1:16
  - are some themes we're seeing from the second
• 1:18
  - quarter earnings calls that are now mostly out
• 1:21
  - for the large hospital operators,
• 1:24
  - and then the largest health insurers. There there's,
• 1:27
  - I think CVS is the only one left
• 1:30
  - at this point in terms of q two
• 1:31
  - earnings, so so they're the outlier there. We've
• 1:34
  - got earnings out now from from HCA,
• 1:37
  - tenants, CHS, UHS,
• 1:39
  - and then across the big payers.
• 1:41
  - And I think, you know, two big topics
• 1:43
  - that I spotted right away,
• 1:45
  - after looking through everybody's
• 1:47
  - calls and financial results for the quarter is
• 1:49
  - that the, the expiration of the ACA subsidies,
• 1:52
  - the enhanced subsidies at the end of last
• 1:54
  - year,
• 1:54
  - it seems like it's really favoring insurers or
• 1:57
  - at least they've they've better managed some of
• 1:59
  - the some of the fallout there. And then
• 2:01
  - the hospitals themselves
• 2:03
  - really seen, a big financial impact from from
• 2:06
  - the fallout there. And then the other story
• 2:09
  - is, on the on the payer side is
• 2:10
  - the Medicare Advantage margin recovery.
• 2:13
  - After the last eighteen to twenty four months
• 2:15
  - of pretty tough a pretty tough business to
• 2:18
  - navigate for the insurers.
• 2:19
  - They're on the upswing again, and, that's likely
• 2:22
  - because of a lot of the moves we've
• 2:23
  - saw them be making over the last couple
• 2:26
  - years. So I can dive into that as
• 2:27
  - well.
• 2:28
  - Thank you so much. And talk about like,
• 2:30
  - I saw Centene's earnings not Centene's.
• 2:32
  - Oscar Health's earnings were way up, and they're
• 2:35
  - a Medicare Advantage provider,
• 2:37
  - you you know, or or ACA,
• 2:39
  - you know, it it they trim their ACA
• 2:41
  - business and their profits went way up.
• 2:44
  - And then so a tenant also
• 2:46
  - recorded a really good quarter,
• 2:48
  - you know, notwithstanding all the discussion of the
• 2:50
  - ACA and everything else. And I saw HCA
• 2:54
  - had talked somewhat negatively about their earnings, but
• 2:57
  - at the end of the day, even though
• 2:58
  - they took a hit on the ACA business,
• 3:01
  - their overall business seems to be going fantastically
• 3:03
  - well.
• 3:04
  - Give us some of the takes that you
• 3:05
  - have in watching this. What what are you
• 3:07
  - seeing out there?
• 3:09
  - For sure. And, I think Scott Oscar's gonna
• 3:11
  - come out later next month in August, but
• 3:13
  - Centene,
• 3:14
  - the big ACA operator, did have their earnings
• 3:17
  - this week. So I can dive into that
• 3:18
  - in just a sec, but,
• 3:20
  - or actually right now because
• 3:22
  - I can talk about some of the ACA
• 3:23
  - subsidy fallout. I think what's interesting
• 3:26
  - is that,
• 3:27
  - the the the large health systems, they're they're
• 3:30
  - absorbing
• 3:31
  - a bigger wave
• 3:33
  - of newly uninsured patients
• 3:35
  - than they than they originally expected earlier this
• 3:37
  - year. And so,
• 3:39
  - you know, everybody
• 3:41
  - knew that,
• 3:42
  - the enhanced
• 3:44
  - credits that lowered the exchange premiums for millions
• 3:47
  - of enrollees,
• 3:48
  - and they lapsed at the end of, last
• 3:50
  - year after congress failed to extend them. And
• 3:53
  - I think it's interesting that, you know, insurers
• 3:55
  - had anticipated the expiration or at least they
• 3:57
  - had
• 3:58
  - planned around it. So a lot of them
• 4:00
  - filed two different sets of rates with states
• 4:03
  - going into this year.
• 4:05
  - And so the insurers were able to raise
• 4:08
  - their premiums,
• 4:09
  - in part around the assumption that
• 4:11
  - when or if the the subsidies expired
• 4:14
  - and and premiums went up for millions of
• 4:16
  - people that people who are healthier who,
• 4:19
  - you know, in theory don't need health insurance.
• 4:21
  - I'm not saying that people don't, but people
• 4:24
  - who felt that they could go without it,
• 4:26
  - that they would face sticker shock on the
• 4:27
  - premiums and they would drop coverage.
• 4:29
  - And so originally,
• 4:31
  - a health system like HCA, they had thought
• 4:33
  - that around eighty to eighty five percent of
• 4:35
  - those types of individuals,
• 4:37
  - they they would just become uninsured and that
• 4:39
  - the other fifteen percent would find coverage elsewhere.
• 4:42
  - But it ended up being those assumptions were
• 4:44
  - wrong, and it ended up being that almost
• 4:46
  - a 100% of those people ended up not
• 4:48
  - getting coverage elsewhere either through Medicaid or through
• 4:51
  - an an employer.
• 4:53
  - And and that theme was consistent across,
• 4:56
  - CHS, Tenet,
• 4:57
  - Universal, UHS, which is more behavioral hospitals. So,
• 5:01
  - basically,
• 5:02
  - more in So how do you, though, how
• 5:04
  - do you filter this out? Because you're absolutely
• 5:06
  - right. I'm I'm looking at the things that
• 5:08
  - you're looking at and seeing that they essentially
• 5:11
  - said people lost coverage.
• 5:14
  - They're still getting hospital care and and health
• 5:16
  - care, but we're just not getting paid for
• 5:19
  - it as we were getting paid at least
• 5:20
  - somewhat under the ACA plans.
• 5:22
  - Yep. So this is a drag on their
• 5:24
  - margins and outlook. But at the same time,
• 5:27
  - overall,
• 5:29
  - the earnings for a lot of these
• 5:32
  - big health systems seem to be pretty solid,
• 5:34
  - at least the for profit ones.
• 5:36
  - Sure. And, I mean, I think that's reflects
• 5:39
  - their their ability to,
• 5:41
  - absorb or pad margins elsewhere. I mean, I
• 5:43
  - know Tennant mentioned their ambulatory surgery mix,
• 5:47
  - that was able to help absorb the hit,
• 5:49
  - for them based off of planning that they
• 5:51
  - did, in the middle of of last year.
• 5:54
  - So I think, you know, for a lot
• 5:55
  - of these systems overall, they're able to either
• 5:58
  - make it up elsewhere, but also I think
• 6:00
  - you have to remember that
• 6:01
  - just in the wide market context,
• 6:04
  - this year, there's only 19,000,000 ACA exchange enrollees.
• 6:07
  - That's that's pretty minuscule compared to, you know,
• 6:10
  - the the over a 100,000,000 people that are
• 6:12
  - enrolled in employer based plans,
• 6:14
  - you know, the
• 6:16
  - tens of millions that are enrolled in Medicare
• 6:17
  - Advantage Plans. So
• 6:19
  - just we're just talking about tenant alone. I
• 6:22
  - think exchange patients made up only about five
• 6:24
  - and a half percent of the system's
• 6:26
  - overall revenue.
• 6:27
  - So I think that's also why
• 6:29
  - this is it didn't hit the systems as
• 6:31
  - as as hard as, you know, it it
• 6:33
  - could have. But let me ask you this
• 6:35
  - question. This is what I'm trying to understand
• 6:37
  - a little bit. Yeah. You said it really
• 6:39
  - well right there that out of hundreds of
• 6:41
  - millions of patients, it's only 19,000,000
• 6:44
  - that were in these types of exchanges or
• 6:45
  - something like that.
• 6:47
  - Mhmm. Tenants got a lot of outpatient and
• 6:49
  - so not nearly as affected,
• 6:51
  - and, ultimately, you had a really good quarter.
• 6:53
  - Their stock was way up yesterday.
• 6:56
  - HCA is down about 11%
• 6:58
  - year to date,
• 6:59
  - but HCA sort of,
• 7:01
  - you know, went pretty hard in the press
• 7:03
  - conference earnings release
• 7:04
  - about how struggling and difficult this ACA headwinds
• 7:08
  - are.
• 7:09
  - And is that political positioning
• 7:12
  - given that it's ultimately a relatively small percent
• 7:14
  - of their entire business?
• 7:16
  - Or or is that, you know, is that
• 7:19
  - real or is that political positioning? How do
• 7:20
  - you sort of guide through that? And and,
• 7:23
  - you know, and I don't know if you
• 7:24
  - have if you have an opinion on that.
• 7:26
  - Maybe it's both. I mean, I think what
• 7:29
  - what, you know, what's,
• 7:32
  - for profit business is going to willingly not
• 7:35
  - advocate for more insured
• 7:38
  - patients
• 7:39
  - overall,
• 7:40
  - and and whatever policy supports that.
• 7:43
  - But I also think if you look at
• 7:45
  - HCA's numbers specifically, I mean, they they think
• 7:47
  - that the the ACA hit to their payer
• 7:49
  - mix is gonna hit somewhere between a billion
• 7:51
  - and 1,200,000,000,
• 7:53
  - over the course of this entire year, Scott,
• 7:54
  - and that's up from around 600 to 900,000,000
• 7:58
  - just earlier this this this year. So, you
• 8:01
  - know, just doing the math there, that's roughly
• 8:03
  - $400,000,000
• 8:04
  - difference
• 8:05
  - if if the on the higher end of
• 8:07
  - those projections. I mean, $400,000,000
• 8:09
  - for for any organization, it's a lot of
• 8:11
  - money. So,
• 8:13
  - I think it's a mixture. I mean, they're
• 8:15
  - overall, they're gonna they're gonna want,
• 8:18
  - these these subs these enhanced subsidy policies in
• 8:21
  - place,
• 8:22
  - or just more policies that support ACA enrollment
• 8:26
  - because that means more commercially insured
• 8:28
  - patients.
• 8:30
  - But on the flip side, in the grand
• 8:32
  - scheme of their entire organizations,
• 8:34
  - it is on in the singular percentage of
• 8:37
  - of making up the entire revenue for sure.
• 8:39
  - So I think Right. When when when I
• 8:41
  - look at this online, it it essentially says,
• 8:44
  - you know, that
• 8:45
  - adjusted
• 8:46
  - EBIT outlook for the year for HCA.
• 8:49
  - And I'm not saying that these companies are
• 8:51
  - crying wolf,
• 8:52
  - but their adjusted EBITDA
• 8:54
  - projection for the year is $15,500,000,000,
• 8:58
  - 15,400,000,000
• 8:59
  - to 16,100,000,000.
• 9:01
  - I mean, they do say, yes, more uninsured
• 9:03
  - patients,
• 9:04
  - fewer elective surgeries,
• 9:06
  - pressure from changes in the Affordable Care Act.
• 9:09
  - You know? But at the same time,
• 9:11
  - that 400,000,000, you're absolutely right. It's a lot
• 9:13
  - of money,
• 9:15
  - but this is a a company with net
• 9:16
  - profit of 6 to $7,000,000,000,
• 9:19
  - adjusted EBITDA when you add back interest depreciation
• 9:22
  - of 15,500,000,000
• 9:23
  - or so. Is that I so I do
• 9:25
  - like I I hear you and I hear
• 9:27
  - them in saying this is gonna negatively impact
• 9:29
  - their profits,
• 9:31
  - but it is also hard
• 9:33
  - to be too empathetic
• 9:35
  - when essentially
• 9:37
  - they still got able to have 15,000,000,000 plus
• 9:39
  - a year.
• 9:40
  - And so I do look at this little
• 9:41
  - bit great compliment.
• 9:42
  - As as a fear
• 9:44
  - point that the profits are down a little
• 9:46
  - bit, but it it it it does seem
• 9:49
  - like a little bit of political advocacy, a
• 9:50
  - little bit of everything else when they're still
• 9:52
  - so incredibly profitable, which is not bad. It
• 9:55
  - just is what it is.
• 9:56
  - Yeah. No. I I completely agree with you.
• 9:58
  - And I I have seen some also some
• 10:00
  - interesting commentary out there from analysts saying that
• 10:03
  - one effect though that this could have overall
• 10:05
  - on on the market is, you know, you've
• 10:07
  - got these uninsured patients, more of them coming
• 10:10
  - into these systems seeking care. They can't turn
• 10:12
  - them away in an in an emergency setting.
• 10:16
  - Right now, in the past, it's been that,
• 10:18
  - you know, if you do cash pay, you're
• 10:20
  - you're probably paying less than,
• 10:23
  - what you what you might pay,
• 10:25
  - under on a under a commercial plan or
• 10:27
  - what the or what the payer pays in
• 10:28
  - the hospital.
• 10:29
  - But that might change as these hospitals do
• 10:32
  - still wanna make up those those lost margins.
• 10:35
  - With the with this ACA hit, the cash
• 10:37
  - pay prices might rise,
• 10:40
  - to to equal, commercial payments. I'm not saying
• 10:43
  - that's gonna happen, but I've seen some analysts
• 10:44
  - talk about,
• 10:46
  - that the that the cash pay discounts
• 10:48
  - of of of current of of the past
• 10:51
  - might be something that that could be on
• 10:52
  - the chopping block moving forward for a lot
• 10:54
  - of health systems.
• 10:56
  - No. Fascinating. Fascinating. So tell us on the
• 10:59
  - payers side. I must have misread the Oscar
• 11:00
  - health stuff. Maybe the Oscar health
• 11:03
  - rose
• 11:04
  - based on the Centene earnings announcement. Yeah. Tell
• 11:06
  - me what's going on with some of the
• 11:07
  - payers there. You know, and I think you
• 11:09
  - you're probably correct there because Centene did have
• 11:12
  - a good quarter,
• 11:13
  - and they've, I mean, they've completely turned things
• 11:15
  - around, especially compared to last year that had
• 11:18
  - over $250,000,000
• 11:20
  - loss in the same quarter last year, and
• 11:22
  - then they recorded,
• 11:23
  - over $1,000,000,000
• 11:24
  - in profit this year. And I think that's
• 11:27
  - all really coming from,
• 11:29
  - targeted reductions in,
• 11:31
  - partially in that in that ACA business. And
• 11:33
  - their CEO talked about it,
• 11:35
  - yesterday on the earnings call, basically saying that
• 11:38
  - their their internal actuaries saw what could be
• 11:41
  - coming down the pipeline with just the expired
• 11:43
  - subsidies alone, and so they prepared different sets
• 11:46
  - of rates. They refiled quickly with the states,
• 11:49
  - to make sure that the basically, their plans
• 11:51
  - were priced correctly on the ACA.
• 11:54
  - The basically, the premiums were were higher
• 11:57
  - to make up for the loss of I
• 12:00
  - think it's close to 2,000,000 people or around
• 12:02
  - that,
• 12:03
  - that that they've lost just in the marketplace.
• 12:06
  - But that all being said, their their margin,
• 12:09
  - they she boosted the margin, for the marketplace
• 12:12
  - business, for 2026.
• 12:14
  - So even though they've lost millions of of
• 12:16
  - exchange members, it's actually helped their their profit
• 12:20
  - margin in that business,
• 12:21
  - because they were able to raise premiums,
• 12:23
  - ahead of time last year.
• 12:26
  - So so that's kind of why they They're
• 12:27
  - they're losing some of that business, but they're
• 12:29
  - doing better business. And this is part of
• 12:32
  - how a lot of these different, plans
• 12:35
  - moved away from Medicare Advantage, moved away some
• 12:36
  - of the things where they weren't as profitable.
• 12:39
  - So it's a loss to the consumer,
• 12:41
  - but the insurers seem to do okay.
• 12:44
  - Yeah. Exactly. And it's a it's a similar
• 12:47
  - story playing out. I mean, obviously, a completely
• 12:48
  - different market, but it's a similar story playing
• 12:50
  - out with Medicare Advantage. They're really all focused
• 12:53
  - on margin recovery right now, and it it
• 12:56
  - is a multiyear rebuild everywhere across across the
• 12:58
  - biggest companies. We had Humana come out today,
• 13:02
  - saying that their individual
• 13:03
  - Medicare Advantage pretax margin should double this year
• 13:07
  - excluding STARS headwinds, which is a bit of
• 13:09
  - a wild card right now across the entire
• 13:10
  - industry
• 13:11
  - given the the mess that that is between
• 13:13
  - the insurers and the government.
• 13:15
  - But it's the same same story arc with
• 13:17
  - with UnitedHealth, with Ellevance,
• 13:19
  - all trying to rebuild margins in that business
• 13:23
  - mostly going into next year.
• 13:25
  - And and, we're seeing a lot of targeted
• 13:28
  - exits. So that's either leaving markets entirely or
• 13:32
  - it's dropping, you know, like PPPO ends and
• 13:34
  - hoping to
• 13:35
  - shuttle members into HMO or or,
• 13:39
  - narrower networks.
• 13:40
  - So, basically, overall, Elavance, United,
• 13:43
  - Elavance did it last year. United is, dropping
• 13:46
  - millions of members this year. Humana just announced
• 13:49
  - today they're gonna drop 600,000
• 13:51
  - members through targeted exits. So similar story. They're
• 13:54
  - trying to basically shed
• 13:57
  - more expensive membership,
• 13:59
  - to preserve the margin overall, which really contrasts
• 14:01
  - with
• 14:02
  - the decade before this, which was growth, I
• 14:04
  - think, at all costs, Scott. So that's the
• 14:07
  - story. His his margin recovery continues for Medicare
• 14:10
  - Advantage.
• 14:11
  - Best thing to watch. So in terms of
• 14:13
  - the big hospitals and health systems,
• 14:15
  - some of them taking a bigger hit than
• 14:17
  - others based on some of the ACA subsidies
• 14:19
  - not being in place
• 14:21
  - and and people leaving ACA subsidies and being
• 14:23
  - uninsured.
• 14:25
  - But in the big scheme of things, at
• 14:26
  - least the for profit health systems
• 14:28
  - doing pretty well.
• 14:29
  - Yeah. The payers
• 14:31
  - being much more targeted in their approach to
• 14:33
  - what markets they're in and also notwithstanding
• 14:36
  - the changes in the ACA, the changes in
• 14:38
  - some of the Medicare Advantage,
• 14:40
  - also doing pretty well.
• 14:42
  - Yeah. And that all ties back to, with
• 14:44
  - Medicare Advantage, that all ties back to affecting
• 14:46
  - the hospitals, Scott, with much tougher contract renegotiation
• 14:50
  - cycles with MA plans, you know, tougher
• 14:53
  - utilization policies in terms of
• 14:56
  - prior auth, clawbacks,
• 14:58
  - audits,
• 14:59
  - tougher reimbursement policies,
• 15:01
  - and really stretching the limits of what CMS
• 15:03
  - allows between traditional Medicare and MA. We've seen
• 15:06
  - a lot of big lawsuits filed recently by
• 15:08
  - big health systems over MA reimbursement policies. So
• 15:11
  - the the health systems, I think, are really
• 15:13
  - feeling this margin recovery from the payers and
• 15:16
  - and trying to get paid,
• 15:19
  - for for the MA patients that they serve.
• 15:21
  - And then, of course,
• 15:22
  - we we've we've certainly covered that trend that's
• 15:24
  - been going on across the country as well
• 15:26
  - and some of those contract tensions.
• 15:29
  - Truly fascinating.
• 15:31
  - Jacob, as always, I learn more when I
• 15:34
  - talk to you than when I talk to
• 15:35
  - almost anybody. I greatly appreciate it. I hope
• 15:38
  - our audience feels the same and learns a
• 15:40
  - lot too. Again,
• 15:42
  - lots of ACA subsidy overhangs as people move
• 15:45
  - out of the ACA market,
• 15:47
  - and become uninsured.
• 15:49
  - The big for profit seem to manage this
• 15:52
  - really well even though they may whine about
• 15:54
  - it a lot. This is my perspective, my
• 15:56
  - talking, not Jacob.
• 15:57
  - The not for profits have a harder time
• 15:59
  - because often their payer mixes are tougher than
• 16:01
  - some of the for profits that really position
• 16:03
  - the markets.
• 16:04
  - The insurance companies also
• 16:06
  - seemingly,
• 16:07
  - for all the complaining, just step away from
• 16:09
  - that line of business, which wasn't that profitable
• 16:11
  - for them and seemed to be doing okay
• 16:13
  - with some of these changes.
• 16:15
  - Yeah. Definitely. I think a good way to
• 16:16
  - summarize it, Scott.
• 16:18
  - Jacob, absolutely fascinating. Thank you for joining us
• 16:21
  - today on the Becker's Healthcare podcast. Thank you
• 16:23
  - very, very much.
• 16:24
  - Always good to talk with you. Thank you.