Six Weeks Early, 2012-13 Flu May Spike Medical Costs for Medicaid, MA Plans

Reprinted from HEALTH PLAN WEEK, the most reliable source of objective business, financial and regulatory news of the health insurance industry.

By Patrick Connole, Editor

December 10, 2012 Volume 22 Issue 43

Although all health insurers are vulnerable to higher flu-related medical costs, Medicaid managed care organizations are likely to experience the most cost pressure from higher medical utilization rates, if a late November government report showing the 2012-2013 flu season six weeks ahead of schedule portends a severe winter for the ailment, market observers say.

Centene Corp. is one of the insurers in the crosshairs of a possible severe flu period, since its busiest Medicaid markets are in the Southern states where the Centers for Disease Control and Prevention (CDC) has detected early flu activity. ”This is the earliest in the regular season that influenza activity has reached the national baseline level since the 2003-2004 season,” CDC said in its report. This fact has some worried the flu season could be severe and prolonged.

“Centene’s membership has the highest overlap with the five states reporting high flu activity this year. These five states are Alabama, Louisiana, Mississippi, Tennessee and Texas,” said Scott Fidel, a securities analyst for Deutsche Bank, in a Dec. 4 investor’s note. He added that Centene has 1.1 million members in Louisiana, Mississippi and Texas, accounting for 45% of total enrollment. “When also including the two states with moderate flu activity, Georgia and Missouri, almost 1.5 million or nearly 60% of Centene’s members reside in states that are reporting moderate or high flu activity,” Fidel added.

Requests for comment from Centene on Fidel’s analysis went unanswered by HPW press time.

Although Fidel and other industry analysts say it is too early to draw any meaningful conclusions from the early flu activity’s impact on medical costs for Medicaid and Medicare Advantage (MA) operators, there is concern. “We believe this heightened flu activity has a positive read through for hospitals, while it creates more of a headwind to managed care and Medicaid in particular, given the disproportionate impact,” said Ralph Giacobbe, securities analyst for Credit Suisse, in a Dec. 4 investor’s note.

Matthew Coffina, a health care industry analyst at Morningstar, Inc., tells HPW that while the markets tend to overreact to reports like the November CDC assessment, infectious diseases “are one of the few correlated risks that can affect managed care,” akin to a hurricane or other natural disaster for a property insurer. The issue for Medicaid plans is that regardless of any flu-caused utilization spike, the margins are tight to begin with. “It is a low-margin business with low control over premium rates. There is little ability to adjust,” Coffina says.

Medicaid plans’ heightened vulnerability stems from the fact the flu attacks the elderly and young children in higher proportions than the rest of the population. An outbreak, or even a pandemic like the H1N1 flu seen in 2009, results in more doctor visits, more prescription drug purchases and more hospital admissions for Medicaid recipients, many of whom are in managed care plans. MA plans have the same risk from their elderly membership, analysts say.

Flu Vaccine May Ease Fears

Molina Healthcare Inc., another major managed care operator, is both cautious and optimistic about what the flu season may bring to its members. Michael Siegel, M.D., corporate vice president/medical director, tells HPW that predictions for a more severe-than-normal flu outbreak mean people must counteract the threat.

“Creating awareness and providing access are crucial when preparing for a tough flu season. As we do each season to reduce the impact, we remind our providers and members of the importance of getting the annual flu vaccine and we share additional ways to prevent both contracting and spreading the infection,” he says.

Precaution may be especially helpful this season since the flu vaccine is expected to work well against the 2012-2013 strain of influenza. “We believe that the full impact of the epidemic may be blunted because of the excellent match between this year’s flu vaccine and the flu viruses as well as the public’s increased awareness of the importance of vaccination,” Siegel adds.

Humana Inc.’s Concentra Health Services, a chain of 320 health care clinics, attacks the seasonal flu threat by doing outreach early in the season, primarily in September and early October, to drive awareness and encourage people to get an annual flu shot, Concentra spokesperson Matt Longman tells HPW. “Given the latest report from the CDC and our own clinical data, we are increasing our efforts to communicate the importance of getting a flu shot, which are available at all Concentra locations nationwide. This new information gives many the opportunity to get vaccinated before the peak of the season hits, which is usually in late January. But we continue to see flu visits increase in select states experiencing high concentration, and will likely see more MA and Medicare patients seeking treatment for influenza.”