The year 2011 was the advent of the retirement crisis in America.
By Cathy Weatherford
JANUARY 16, 2012
The year 2011 was the advent of the retirement crisis in America. As we move forward into 2012 and the next several years, an unprecedented number of Americans will enter into retirement, 79 million to be exact. However, the majority of them are financially ill-prepared for retirement. Baby boomers face numerous retirement income challenges, many of which are unique to their generation.
As this generation enters retirement, we are seeing growing uncertainty among the sources of retirement income that have traditionally been heavily relied upon by retirees, such as Social Security. On top of that healthcare costs continue to increase and will continue increasing in the coming years. The life expectancy of baby boomers exceeds that of previous generations and in turn they will be spending more time in retirement than previous retirees, thus requiring retirement savings to last over a longer period of time.
Given these factors, it’s not surprising that recent studies by the Insured Retirement Institute (IRI) found that the top concern of nearly one-third of boomers is having adequate retirement assets, and over half said they plan on working in retirement for income. Yet it is not necessary for boomers to sacrifice their retirement goals. With proper planning and guidance from a financial professional, this generation can crack the retirement code and retire with financial security.
Social Security Instability
Social Security has traditionally been a major source of retirement income for retirees, and Americans have come to rely upon it to cover many essential costs during retirement. However, over the past several years we have seen decreasing solvency of the fund. In 2010 and 2011, for the first time since the program’s inception, retirees did not receive a Cost of Living Adjustment (COLA) in their Social Security checks. Yet they still shouldered the burden of inflation and increasing medical costs. In 2012, retirees will receive a COLA, however much of it will be negated by the increase in Medicare Part B premiums.
Still many Americans nearing retirement plan on Social Security providing for a majority of their income throughout retirement. More than four out of 10 baby boomers cited Social Security as a major source of retirement income with 51 percent of older boomers anticipating it to make up a significant portion of their retirement income.
Rising Healthcare Costs
The cost of healthcare climbs higher and higher each year, often outpacing the rate of inflation. Between 2000 and 2009 alone, medical and prescription costs, health insurance premiums and deductibles rose nearly 150 percent. At these rates the high cost of healthcare will become greater and is a significant factor that Americans must account for when considering how much they need for retirement. A study by the Center for Retirement Research at Boston College found that a couple who are both 65 can expect the cost of healthcare for the remainder of their lives to be $260,000.
Sadly, nearly 50 percent of boomers believe they do not have enough money to cover these expenses during retirement. This leaves many of them questioning their ability to ever fully retire.
Increased Life Expectancy
Not only are today’s pre-retirees facing the challenges of Social Security instability and mounting healthcare costs they are also living longer making the time spent in retirement longer. Half of today’s 65-year-old men are expected to live until age 85 and half of women 65 years old or older are expected to live to age 88, thus baby boomers could spend roughly 20 years or more in retirement. Consequently, this generation will require more savings and to make their retirement savings extend over a longer period of time than previous generations.
Building Your Client’s Future
While the aforementioned challenges pose a significant threat to one’s retirement income, through proper financial planning and the help of a financial advisor, baby boomers can decrease the impact of these risks to their financial security in retirement.
When planning for retirement, like most daunting tasks, the first steps are often the hardest. As a financial professional, help your clients begin the process of developing a retirement income strategy by working with them to take two important steps.
First, have your client review his or her assets by identifying the accounts in which they have money and which assets they plan to use for retirement income. The client should identify current income sources, such as Social Security and pensions, to provide a starting point and to help set goals for the future.
The second step you can take with your client is to help them identify essential (i.e., food, shelter, utilities, etc.) and non-essential expenses. This will help evaluate which retirement income strategy is best for your client. Investors often prefer to cover essential expenses
Once these steps have been taken you and your client are able to best figure out which strategies are the best choice to help your client achieve their retirement goals and maintain financial stability throughout retirement. IRI’s retirement income guide, Building Your Future, explains three different retirement income strategies: investment and income planning strategies, insured income products and income-producing investment products.
Investment and income planning strategies are used with the underlying investments. This strategy includes a number of different approaches including systematic withdrawal plans (SWPs), the bucket approach, the risk-adjusted total return approach, the income floor/hybrid approach, bond ladders, laddering a CD portfolio and reverse mortgages. The majority of these approaches generate cash flow through a combination of high- and low-risk investments in a highly diversified portfolio.
If your client is concerned about the market risks and volatility that accompany the investment and income planning strategies, then they may want to consider insured income products for retirement income. These include variable annuities with guaranteed lifetime withdrawal benefits, single premium annuities, advanced life deferred annuities and long-term care. These products offer the predictability of a steady income stream and help protect against longevity risk and market risk.
Lastly, income-producing investment products are common investment products that are designed to produce income; however, income levels may fluctuate due to associated market risks. These products include income-distributing mutual funds (i.e., maturity date managed payout funds, endowment managed payout funds, dividend-paying mutual funds and TIPS mutual funds), dividend-paying stocks, preferred stocks and real estate investment trusts (REITs).
By working with your client to create a diversified retirement income plan utilizing the three previously described strategies, they will be better protected against the financial risks and challenges retirees face.
For more details about the different retirement income strategies discussed here get your copy of the Insured Retirement Institute’s client-approved retirement income guide, “Building Your Future,” and the supplemental matrix, “Retirement Income Strategies & Products at a Glance,” at www.myIRIonline.org.
Cathy Weatherford is president and CEO of the Insured Retirement Institute.
At Medicare is Simple, we look to educate and enable you to choose among Medicare plans to help find the policy that may best fit your needs. Get free quotes using our advanced quoting technology. HealthCare Reform is also a hot topic of interest to people of all ages, and we look to keep you updated on the issues relevant to learning more. Medicare Is Simple 800-442-4915
Tuesday, February 7, 2012
Employer Retiree Groups Will Move To MA, but How Soon Is the Question
Reprinted from MEDICARE ADVANTAGE NEWS, biweekly news and business strategies about Medicare Advantage plans, product design, marketing, enrollment, market expansions, CMS audits, and countless federal initiatives in MA and Medicaid managed care.
By James Gutman, Managing Editor
January 26, 2012 Volume 18 Issue 2
Employer groups stand to become a much bigger contributor to Medicare Advantage growth than they are now, but any big move probably won’t occur until 2013 and beyond, according to executives, consultants and securities analysts.
“There’s a great deal of interest” on the part of employers, said Humana Inc. Chairman and CEO Michael McCallister in response to a question following his presentation at JPMorgan’s annual health care conference for investors in San Francisco Jan. 10. “There’s also a great deal of inertia.” He declined to forecast when employers that now offer retiree medical benefits would reach the “inflection point” to switch their retirees to MA. “The demand is there, but they won’t pull the trigger,” McCallister explained.
End of RDS May Spur Switches
One big reason for the demand, aside from the high and rising cost of retiree medical benefits, is that the federal Retiree Drug Subsidy (RDS) payment to employers ends next year. Faced with the loss of that subsidy, analysts and consultants predict, many employers will make the switch to MA, with the biggest beneficiaries perhaps likely to be insurers that already have large employers’ business.
Cigna Corp. is one of those, and CEO David Cordani said Jan. 11 that the company now expects its acquisition of HealthSpring, Inc. (MAN 10/27/11, p. 1) to close in the first quarter, earlier than expected. Securities analyst Scott Fidel of Deutsche Bank, in a Jan. 11 research note following Cordani’s presentation at the JPMorgan conference, saw a plus for that effort since “an earlier close should provide Cigna with more time to implement its group Medicare sales strategy with large-employer clients for the 2013 selling season.” Fidel added that “Cigna previously did not have a credible Medicare offering.”
But some others have doubts that employers will pull the trigger in a big way on this during 2012. The employer-group move to MA has been expected “for a couple of years,” says, for instance, Nathan Goldstein, CEO of consulting firm Gorman Health Group, LLC, but it has been “slow to happen.” While the approaching start of insurance exchanges under reform has “sped up” employer thinking about this, and such moves to MA will “take off in a couple of years,” Goldstein tells MAN, “I would be surprised if it happened this year.”
Gary Jacobs, senior vice president, corporate development at MA sponsor Universal American Corp., has a similar outlook. An increasing number of employers’ benefit departments is bringing up the concept of a switch to MA, he tells MAN; “I don’t know if we will see an impact in 2012, but we will in 2013” if the elections this fall, in effect, uphold the health reform law. Another spur to such moves, he adds, is that about 10,000 Americans are turning age 65 daily, creating both a “demographic imperative” to do something about retiree medical costs as well as the benefit of having an age-in population that is accustomed to managed care.
Greg Scott, a principal in Deloitte Consulting LLP, also isn’t expecting “much” of an employer retiree move to MA this year. However, he tells MAN, state and local governments with labor contracts that include retiree medical benefits are looking at this with growing urgency.
The RDS is a big factor in that, since its end in 2013 will prompt the “last land grab” for Medicare Part D beneficiaries, says Mike Flagstad, CEO of drug-benefit-oriented consulting firm Visante, Inc.
Flagstad tells MAN he is surprised so many employers have stayed with RDS rather than converting to Part D or dropping coverage, and theorizes that perhaps compliance concerns have been part of the reason. There haven’t been a lot of enforcement actions regarding employer switches, though, he notes, and employer plans that Visante has spoken with now are considering moving retirees into either MA plans or stand-alone Prescription Drug Plans (PDPs).
The overall employer move, observes consultant Stephen Wood, senior vice president at OptumInsight, will be part of the growing trend toward defined-contribution rather than defined-benefit plans for retirees. And his colleague, OptumInsight Vice President Kirk Twiss, predicts that after RDS goes away in 2013, some employers will just cut out retiree drug benefits entirely.
By James Gutman, Managing Editor
January 26, 2012 Volume 18 Issue 2
Employer groups stand to become a much bigger contributor to Medicare Advantage growth than they are now, but any big move probably won’t occur until 2013 and beyond, according to executives, consultants and securities analysts.
“There’s a great deal of interest” on the part of employers, said Humana Inc. Chairman and CEO Michael McCallister in response to a question following his presentation at JPMorgan’s annual health care conference for investors in San Francisco Jan. 10. “There’s also a great deal of inertia.” He declined to forecast when employers that now offer retiree medical benefits would reach the “inflection point” to switch their retirees to MA. “The demand is there, but they won’t pull the trigger,” McCallister explained.
End of RDS May Spur Switches
One big reason for the demand, aside from the high and rising cost of retiree medical benefits, is that the federal Retiree Drug Subsidy (RDS) payment to employers ends next year. Faced with the loss of that subsidy, analysts and consultants predict, many employers will make the switch to MA, with the biggest beneficiaries perhaps likely to be insurers that already have large employers’ business.
Cigna Corp. is one of those, and CEO David Cordani said Jan. 11 that the company now expects its acquisition of HealthSpring, Inc. (MAN 10/27/11, p. 1) to close in the first quarter, earlier than expected. Securities analyst Scott Fidel of Deutsche Bank, in a Jan. 11 research note following Cordani’s presentation at the JPMorgan conference, saw a plus for that effort since “an earlier close should provide Cigna with more time to implement its group Medicare sales strategy with large-employer clients for the 2013 selling season.” Fidel added that “Cigna previously did not have a credible Medicare offering.”
But some others have doubts that employers will pull the trigger in a big way on this during 2012. The employer-group move to MA has been expected “for a couple of years,” says, for instance, Nathan Goldstein, CEO of consulting firm Gorman Health Group, LLC, but it has been “slow to happen.” While the approaching start of insurance exchanges under reform has “sped up” employer thinking about this, and such moves to MA will “take off in a couple of years,” Goldstein tells MAN, “I would be surprised if it happened this year.”
Gary Jacobs, senior vice president, corporate development at MA sponsor Universal American Corp., has a similar outlook. An increasing number of employers’ benefit departments is bringing up the concept of a switch to MA, he tells MAN; “I don’t know if we will see an impact in 2012, but we will in 2013” if the elections this fall, in effect, uphold the health reform law. Another spur to such moves, he adds, is that about 10,000 Americans are turning age 65 daily, creating both a “demographic imperative” to do something about retiree medical costs as well as the benefit of having an age-in population that is accustomed to managed care.
Greg Scott, a principal in Deloitte Consulting LLP, also isn’t expecting “much” of an employer retiree move to MA this year. However, he tells MAN, state and local governments with labor contracts that include retiree medical benefits are looking at this with growing urgency.
The RDS is a big factor in that, since its end in 2013 will prompt the “last land grab” for Medicare Part D beneficiaries, says Mike Flagstad, CEO of drug-benefit-oriented consulting firm Visante, Inc.
Flagstad tells MAN he is surprised so many employers have stayed with RDS rather than converting to Part D or dropping coverage, and theorizes that perhaps compliance concerns have been part of the reason. There haven’t been a lot of enforcement actions regarding employer switches, though, he notes, and employer plans that Visante has spoken with now are considering moving retirees into either MA plans or stand-alone Prescription Drug Plans (PDPs).
The overall employer move, observes consultant Stephen Wood, senior vice president at OptumInsight, will be part of the growing trend toward defined-contribution rather than defined-benefit plans for retirees. And his colleague, OptumInsight Vice President Kirk Twiss, predicts that after RDS goes away in 2013, some employers will just cut out retiree drug benefits entirely.
PPACA Carrier Tax Could Hit Medicaid
State Medicaid programs are contending that the federal government is getting ready to rob Peter to pay Peter.
The Medicaid Health Plans of American (MHPA), Washington, says letting the government apply the "health insurer fee" provisions in Section 9010 and Section 10905 of the Patient Protection and Affordable Care Act of 2010 (PPACA) to companies that run Medicaid plans would, in effect, amount to taxing Medicaid plans to help pay for expansion of Medicaid plans.
Imposing the fee on Medicaid managed care plans could increase state Medicaid costs by about $14 billion over the 10-year period starting in 2014, MHPA officials say, citing an analysis prepared by analysts in the Brookfield, Wis., office of Milliman Inc.
Because of the way Medicaid funding works, the federal government would spend about $25 billion on Medicaid plans' health insurance tax obligations.
Medicaid health plans could end up paying a total of one-sixth of the health insurance fee tax revenue collected, MHPA officials say.
MHPA officials are estimating that keeping the PPACA health insurer fee rules as they are now could lead to an average increase in Medicaid managed care premiums of about 1.5% and an increase of up to 2.5% in some states.
PPACA drafters included the health insurer fee in an effort to generate some of the revenue needed to fund the program, and to keep large health insurers from getting windfall profits as a result of PPACA provisions requiring most individuals to own health coverage and most employers to provide coverage starting in 2014.
The fee, which is classified as an excise tax, is supposed to start out generating $8 billion in annual fee revenue in 2014 and produce about $14 billion in revenue in 2018.
PPACA exemptions nonprofit insurers that get more than 80% of their premium revenue from Medicare, Medicaid and other government health insurance programs are exempt from the fee, and other nonprofit insurers can exclude 50% of their premium revenue from the health insurer fee calculations, the Milliman analysts say.
The exemptions might help nonprofit carriers, but they would not do much for the large, for-profit companies that help run many Medicaid plans, the Milliman analysts say.
One side effect could be that nonprofit Medicaid carriers would suddenly have a big new competitive edge over for-profit Medicaid carriers, MHPA officials say.
The Medicaid Health Plans of American (MHPA), Washington, says letting the government apply the "health insurer fee" provisions in Section 9010 and Section 10905 of the Patient Protection and Affordable Care Act of 2010 (PPACA) to companies that run Medicaid plans would, in effect, amount to taxing Medicaid plans to help pay for expansion of Medicaid plans.
Imposing the fee on Medicaid managed care plans could increase state Medicaid costs by about $14 billion over the 10-year period starting in 2014, MHPA officials say, citing an analysis prepared by analysts in the Brookfield, Wis., office of Milliman Inc.
Because of the way Medicaid funding works, the federal government would spend about $25 billion on Medicaid plans' health insurance tax obligations.
Medicaid health plans could end up paying a total of one-sixth of the health insurance fee tax revenue collected, MHPA officials say.
MHPA officials are estimating that keeping the PPACA health insurer fee rules as they are now could lead to an average increase in Medicaid managed care premiums of about 1.5% and an increase of up to 2.5% in some states.
PPACA drafters included the health insurer fee in an effort to generate some of the revenue needed to fund the program, and to keep large health insurers from getting windfall profits as a result of PPACA provisions requiring most individuals to own health coverage and most employers to provide coverage starting in 2014.
The fee, which is classified as an excise tax, is supposed to start out generating $8 billion in annual fee revenue in 2014 and produce about $14 billion in revenue in 2018.
PPACA exemptions nonprofit insurers that get more than 80% of their premium revenue from Medicare, Medicaid and other government health insurance programs are exempt from the fee, and other nonprofit insurers can exclude 50% of their premium revenue from the health insurer fee calculations, the Milliman analysts say.
The exemptions might help nonprofit carriers, but they would not do much for the large, for-profit companies that help run many Medicaid plans, the Milliman analysts say.
One side effect could be that nonprofit Medicaid carriers would suddenly have a big new competitive edge over for-profit Medicaid carriers, MHPA officials say.
CMS gives consumers access to more details about infection rates at America’s hospitals
FOR IMMEDIATE RELEASE
Contact: CMS Media Relations Group
February 7, 2012
New data will save lives, cut costs.
Central line-associated bloodstream infections (CLABSIs) are among the most serious of all healthcare-associated infections, resulting in thousands of deaths each year and nearly $700 million in added costs to the U.S. healthcare system. Today, the Centers for Medicare & Medicaid Services (CMS) announced that Hospital Compare will now include data about how often these preventable infections occur in hospital intensive care units across the country. This step will hold hospitals accountable for bringing down these rates, saving thousands of lives and millions of dollars each year.
“Including central line-associated bloodstream infections information on Hospital Compare will save lives and cut costs,” said acting CMS Administrator Marilyn Tavenner. “Adding this information to Hospital Compare extends the Administration’s commitment to make American healthcare safer.”
The Centers for Disease Control and Prevention (CDC) estimates that in 2009, there were about 41,000 CLABSIs in U.S. hospitals. Studies show that up to 25 percent of patients who get a CLABSI will die from the infection. Caring for a patient with a CLABSI adds about $17,000 to a hospitalization. These infections prolong hospitalizations and can cause death.
“Today, consumers are getting access to data provided to hospital leaders and clinicians to monitor progress in reducing CLABSIs,” said CDC Director Thomas R. Frieden, M.D., M.P.H. “This information allows CDC and CMS to highlight prevention and pinpoint where more work is needed on these avoidable infections.”
Today’s announcement builds on HHS’s efforts to make American healthcare safer. In 2011, Secretary Kathleen Sebelius launched the Partnership for Patients initiative, which seeks to reinvent American healthcare delivery in ways that keep patients from being injured or getting sicker in a care system designed to heal them. CMS has already recruited over 6,000 partners, including more than 3,000 hospitals, in this effort, which aims to reduce preventable harm in hospitals by 40 percent by 2014.
Hospital Compare is one of Medicare’s most popular web tools. The site receives about 1 million page views each month and is available in English and in Spanish. More information about Hospital Compare is online at http://www.hospitalcompare.hhs.gov
Consumers have relied on Hospital Compare since 2005 to provide information about the quality of care provided in over 4,700 of America’s acute-care, critical access and children’s hospitals. The website features free, easy-to-use information about these hospitals, including mortality and readmission rates for each, along with 10 measures that capture patient experience with hospital care, 17 measures that assess patient safety at each hospital, 25 process-of-care measures and three children’s asthma care measures.
Click here to view the CMS video with Nancy Foster, Vice President of Quality and Patient Safety Policy at the American Hospital Association discusses CMS' Hospital Compare: http://www.youtube.com/user/CMSHHSgov?feature=mhee#p/u/0/cf99WBNhYEc
Contact: CMS Media Relations Group
February 7, 2012
New data will save lives, cut costs.
Central line-associated bloodstream infections (CLABSIs) are among the most serious of all healthcare-associated infections, resulting in thousands of deaths each year and nearly $700 million in added costs to the U.S. healthcare system. Today, the Centers for Medicare & Medicaid Services (CMS) announced that Hospital Compare will now include data about how often these preventable infections occur in hospital intensive care units across the country. This step will hold hospitals accountable for bringing down these rates, saving thousands of lives and millions of dollars each year.
“Including central line-associated bloodstream infections information on Hospital Compare will save lives and cut costs,” said acting CMS Administrator Marilyn Tavenner. “Adding this information to Hospital Compare extends the Administration’s commitment to make American healthcare safer.”
The Centers for Disease Control and Prevention (CDC) estimates that in 2009, there were about 41,000 CLABSIs in U.S. hospitals. Studies show that up to 25 percent of patients who get a CLABSI will die from the infection. Caring for a patient with a CLABSI adds about $17,000 to a hospitalization. These infections prolong hospitalizations and can cause death.
“Today, consumers are getting access to data provided to hospital leaders and clinicians to monitor progress in reducing CLABSIs,” said CDC Director Thomas R. Frieden, M.D., M.P.H. “This information allows CDC and CMS to highlight prevention and pinpoint where more work is needed on these avoidable infections.”
Today’s announcement builds on HHS’s efforts to make American healthcare safer. In 2011, Secretary Kathleen Sebelius launched the Partnership for Patients initiative, which seeks to reinvent American healthcare delivery in ways that keep patients from being injured or getting sicker in a care system designed to heal them. CMS has already recruited over 6,000 partners, including more than 3,000 hospitals, in this effort, which aims to reduce preventable harm in hospitals by 40 percent by 2014.
Hospital Compare is one of Medicare’s most popular web tools. The site receives about 1 million page views each month and is available in English and in Spanish. More information about Hospital Compare is online at http://www.hospitalcompare.hhs.gov
Consumers have relied on Hospital Compare since 2005 to provide information about the quality of care provided in over 4,700 of America’s acute-care, critical access and children’s hospitals. The website features free, easy-to-use information about these hospitals, including mortality and readmission rates for each, along with 10 measures that capture patient experience with hospital care, 17 measures that assess patient safety at each hospital, 25 process-of-care measures and three children’s asthma care measures.
Click here to view the CMS video with Nancy Foster, Vice President of Quality and Patient Safety Policy at the American Hospital Association discusses CMS' Hospital Compare: http://www.youtube.com/user/CMSHHSgov?feature=mhee#p/u/0/cf99WBNhYEc
Monday, February 6, 2012
Big MCO Earnings Growth in ’11 Likely Won’t Be Repeated This Year
Reprinted from HEALTH PLAN WEEK, the most reliable source of objective business, financial and regulatory news of the health insurance industry.
By Steve Davis, Managing Editor
January 23, 2012 Volume 22 Issue 3
While health plan stocks enjoyed a banner year in 2011, it’s highly unlikely that earnings will continue to grow at the same pace in 2012. However, continued low medical utilization could mean profits will continue to exceed expectations this year, according to equities analysts who offered their 2012 earnings predictions during a Jan. 18 webinar hosted by AIS.
“I don’t think things are going to be as good as they were last year” for health insurers, said Carl McDonald, an equities analyst at Citigroup Global Markets. Premium rates in 2011, he explained, increased about 7.5% from the previous year, while the medical cost trend grew by about 5.5%. This year, he anticipates that pricing will increase between 6% and 6.5%. If the medical cost trend grows at the same rate as last year, the sector still will experience earnings growth — “it just won’t be as big as it was” in 2011, he explained.
Matthew Coffina, a health care analyst at Morningstar, Inc., agreed that moderate health spending put the managed care sector on “a good trajectory in 2011 and into 2012.” But he predicted that headwinds such as increased regulatory oversight and heightened competition would pressure health plans in the long term.
Federal regulators, as well as some state insurance commissioners, have taken an increasingly tough stance against rate hikes they see as unjustified, particularly in the individual market. Coffina suggested that health plans might try to counter that rate pressure with more aggressive negotiations with providers.
Republican Sweep Would Be Good for Plans
If President Obama is re-elected in November, McDonald anticipates a 10% to 15% earnings decline in 2014 when many of the key reform law provisions kick in. But if a Republican wins the White House, and Republicans gain control of the Senate and maintain a majority in the House, publicly traded health plans could see earnings growth of 5% to 10%, he forecasted.
While it’s too early to predict the presidential race, or even determine the Republican candidate, chances are good that Democrats will lose their majority in the Senate, he added. With 47 seats in the Senate now, Republicans need just four victories to reclaim the majority. Sen. Ben Nelson’s (D-Neb.) recent decision not to run leaves the state without a strong Democratic candidate, and the seat is expected to be won easily by a Republican. Of the 33 Senate seats up for grabs in November, only 10 now are held by a Republican.
“But the presidency is what really matters for managed care,” McDonald told attendees. “If you get a Republican president, regardless of what happens in Congress, it would be a pretty big benefit for managed care because the president appoints the HHS secretary. You’d have to imagine that a Republican HHS secretary would have some very different interpretations of the reform law relative to the situation today.”
One of the biggest concerns among investors is uncertainty about how some reform law provisions, such as guaranteed issue and new taxes on health plans, will wind up impacting insurers when they go into effect. “If Republicans sweep, it means either everything [in the reform law] goes away because they repeal it, or, more likely, the Republicans strip down significant pieces of the legislation. There is very little I could see them doing that would be negative relative to existing expectations,” McDonald asserted.
MLRs, M&A and the Supremes
Here’s a look at five factors that could have a significant impact on health insurers in 2012.
(1) The Supreme Court: If the high court strikes down the individual mandate, it also may need to eliminate other reform law provisions such as rating bands and the guaranteed issue requirement. But that would translate to a negative for health plans because they wouldn’t see as much membership growth through the expanded individual market, Coffina said. He added that upholding the entire law would be the most favorable outcome for plans because many of the negative aspects of the law “are in place and here to stay.”
But once people understand how small the penalty is for not having health coverage in 2014, a Supreme Court decision striking down the mandate probably won’t have much impact on health plan stock prices, McDonald said. “The penalty isn’t nearly enough to convince someone who is young and healthy to buy insurance,” he said.
(2) Medical loss ratio (MLR) minimums: A year ago, many industry analysts predicted the reform law, particularly the MLR requirement, would have a negative impact on health plan earnings. But so far, the law has had a minimal effect. Coffina noted that stock prices among the publicly traded health plans he covers are up about 70% since the middle of 2008. During the same period, the S&P 500 is virtually unchanged. “We thought [the MLR rule] was going to be more meaningful for 2011….It turned into a virtual non-issue,” he told attendees. Part of the expected impact was mitigated by the calculation methodology outlined in the regulations, which allows certain administrative costs to be counted as medical costs, he explained. It also allows health plans to exclude taxes and fees from premium revenue.
(3) Medicare Advantage (MA) plans: The 85% MLR minimum for MA plans, which becomes effective in 2014, will mean margin contraction for carriers. And even more cuts are possible, said Coffina. But, he added, there is still some possibility of an upside for MA through some type of privatized Medicare legislation. Several Republican presidential candidates appear supportive of a Medicare strategy being promoted by Rep. Paul Ryan (R-Wis.) and Sen. Ron Wyden (D-Ore.) (see story, p. 1).
(4) Dual eligibles: People who are eligible for both Medicare and Medicaid represent a significant growth opportunity for managed care, according to McDonald. While there are just 9 million dual eligibles nationwide, annual spending on this group tops $300 billion (about $35,000 per member). Fewer than 1 million dual eligibles are now enrolled in an MA Special Needs Plan. With so much money at stake, MA and Medicaid plan sponsors are seeing duals as their best chance for major growth in the next few years. CMS’s newly created Medicare-Medicaid Coordination Office has proposed Medicare-Medicaid financial alignment models that allow states to share in the savings yielded from better management of dual eligibles. McDonald predicts that over the next three to five years, more than half of the money spent on dual eligibles will be in some type of coordinated care.
(5) Mergers and acquisitions (M&A): It’s unlikely there will be major consolidation among large health insurers in 2012, but carriers such as Aetna Inc. and WellPoint, Inc. might try to beef up their MA business by acquiring an existing company. Although WellPoint acquired CareMore Health Group in August, the deal brought in only 55,000 lives (HPW 6/13/11, p. 3). “They might want to get into it further,” McDonald said. However, there are a limited number of MA acquisition targets. Among publicly traded companies, there are WellCare Health Plans, Inc. and Universal American Corp., and only a couple of private insurers that have more than 100,000 MA lives.
Coffina added that WellPoint might be the most undervalued stock in the sector.
By Steve Davis, Managing Editor
January 23, 2012 Volume 22 Issue 3
While health plan stocks enjoyed a banner year in 2011, it’s highly unlikely that earnings will continue to grow at the same pace in 2012. However, continued low medical utilization could mean profits will continue to exceed expectations this year, according to equities analysts who offered their 2012 earnings predictions during a Jan. 18 webinar hosted by AIS.
“I don’t think things are going to be as good as they were last year” for health insurers, said Carl McDonald, an equities analyst at Citigroup Global Markets. Premium rates in 2011, he explained, increased about 7.5% from the previous year, while the medical cost trend grew by about 5.5%. This year, he anticipates that pricing will increase between 6% and 6.5%. If the medical cost trend grows at the same rate as last year, the sector still will experience earnings growth — “it just won’t be as big as it was” in 2011, he explained.
Matthew Coffina, a health care analyst at Morningstar, Inc., agreed that moderate health spending put the managed care sector on “a good trajectory in 2011 and into 2012.” But he predicted that headwinds such as increased regulatory oversight and heightened competition would pressure health plans in the long term.
Federal regulators, as well as some state insurance commissioners, have taken an increasingly tough stance against rate hikes they see as unjustified, particularly in the individual market. Coffina suggested that health plans might try to counter that rate pressure with more aggressive negotiations with providers.
Republican Sweep Would Be Good for Plans
If President Obama is re-elected in November, McDonald anticipates a 10% to 15% earnings decline in 2014 when many of the key reform law provisions kick in. But if a Republican wins the White House, and Republicans gain control of the Senate and maintain a majority in the House, publicly traded health plans could see earnings growth of 5% to 10%, he forecasted.
While it’s too early to predict the presidential race, or even determine the Republican candidate, chances are good that Democrats will lose their majority in the Senate, he added. With 47 seats in the Senate now, Republicans need just four victories to reclaim the majority. Sen. Ben Nelson’s (D-Neb.) recent decision not to run leaves the state without a strong Democratic candidate, and the seat is expected to be won easily by a Republican. Of the 33 Senate seats up for grabs in November, only 10 now are held by a Republican.
“But the presidency is what really matters for managed care,” McDonald told attendees. “If you get a Republican president, regardless of what happens in Congress, it would be a pretty big benefit for managed care because the president appoints the HHS secretary. You’d have to imagine that a Republican HHS secretary would have some very different interpretations of the reform law relative to the situation today.”
One of the biggest concerns among investors is uncertainty about how some reform law provisions, such as guaranteed issue and new taxes on health plans, will wind up impacting insurers when they go into effect. “If Republicans sweep, it means either everything [in the reform law] goes away because they repeal it, or, more likely, the Republicans strip down significant pieces of the legislation. There is very little I could see them doing that would be negative relative to existing expectations,” McDonald asserted.
MLRs, M&A and the Supremes
Here’s a look at five factors that could have a significant impact on health insurers in 2012.
(1) The Supreme Court: If the high court strikes down the individual mandate, it also may need to eliminate other reform law provisions such as rating bands and the guaranteed issue requirement. But that would translate to a negative for health plans because they wouldn’t see as much membership growth through the expanded individual market, Coffina said. He added that upholding the entire law would be the most favorable outcome for plans because many of the negative aspects of the law “are in place and here to stay.”
But once people understand how small the penalty is for not having health coverage in 2014, a Supreme Court decision striking down the mandate probably won’t have much impact on health plan stock prices, McDonald said. “The penalty isn’t nearly enough to convince someone who is young and healthy to buy insurance,” he said.
(2) Medical loss ratio (MLR) minimums: A year ago, many industry analysts predicted the reform law, particularly the MLR requirement, would have a negative impact on health plan earnings. But so far, the law has had a minimal effect. Coffina noted that stock prices among the publicly traded health plans he covers are up about 70% since the middle of 2008. During the same period, the S&P 500 is virtually unchanged. “We thought [the MLR rule] was going to be more meaningful for 2011….It turned into a virtual non-issue,” he told attendees. Part of the expected impact was mitigated by the calculation methodology outlined in the regulations, which allows certain administrative costs to be counted as medical costs, he explained. It also allows health plans to exclude taxes and fees from premium revenue.
(3) Medicare Advantage (MA) plans: The 85% MLR minimum for MA plans, which becomes effective in 2014, will mean margin contraction for carriers. And even more cuts are possible, said Coffina. But, he added, there is still some possibility of an upside for MA through some type of privatized Medicare legislation. Several Republican presidential candidates appear supportive of a Medicare strategy being promoted by Rep. Paul Ryan (R-Wis.) and Sen. Ron Wyden (D-Ore.) (see story, p. 1).
(4) Dual eligibles: People who are eligible for both Medicare and Medicaid represent a significant growth opportunity for managed care, according to McDonald. While there are just 9 million dual eligibles nationwide, annual spending on this group tops $300 billion (about $35,000 per member). Fewer than 1 million dual eligibles are now enrolled in an MA Special Needs Plan. With so much money at stake, MA and Medicaid plan sponsors are seeing duals as their best chance for major growth in the next few years. CMS’s newly created Medicare-Medicaid Coordination Office has proposed Medicare-Medicaid financial alignment models that allow states to share in the savings yielded from better management of dual eligibles. McDonald predicts that over the next three to five years, more than half of the money spent on dual eligibles will be in some type of coordinated care.
(5) Mergers and acquisitions (M&A): It’s unlikely there will be major consolidation among large health insurers in 2012, but carriers such as Aetna Inc. and WellPoint, Inc. might try to beef up their MA business by acquiring an existing company. Although WellPoint acquired CareMore Health Group in August, the deal brought in only 55,000 lives (HPW 6/13/11, p. 3). “They might want to get into it further,” McDonald said. However, there are a limited number of MA acquisition targets. Among publicly traded companies, there are WellCare Health Plans, Inc. and Universal American Corp., and only a couple of private insurers that have more than 100,000 MA lives.
Coffina added that WellPoint might be the most undervalued stock in the sector.
Friday, February 3, 2012
CMS announces the Prior Authorization of Power Mobility Devices (PMDs) Demonstration and
On November 15, 2011 Centers for Medicare and Medicare (CMS) announced three demonstration projects that aim to strengthen Medicare by eliminating fraud, waste, and abuse. Reductions in improper payments will help ensure the sustainability of the Medicare Trust Funds and protect beneficiaries who depend upon the Medicare program.
CMS is pleased to announce that the Prior Authorization of Power Mobility Devices (PMDs) Demonstration and the Recovery Audit Prepayment Review Demonstration which were delayed from their initial January 1, 2012 start date are expected to move forward on or after June 1, 2012. For additional information on these demonstrations please visit http://go.cms.gov/cert-demos
These demonstrations will begin after receipt of a paperwork reduction act (PRA) Office of Management and Budget (OMB) control number. The CMS posted a PRA notification from these demonstrations on February 3, 2012 at http://www.cms.gov/PaperworkReductionActof1995/PRAL/list.asp
The CMS significantly revised the Prior Authorization of PMDs demonstration in response to provider and supplier concerns. For more information on the adopted changes please visit http://go.cms.gov/PAdemo
The Part A to Part B Rebilling Demonstration began on January 1, 2012.
Click here to view Federal Register notice: https://s3.amazonaws.com/public-inspection.federalregister.gov/2012-02821.pdf
CMS is pleased to announce that the Prior Authorization of Power Mobility Devices (PMDs) Demonstration and the Recovery Audit Prepayment Review Demonstration which were delayed from their initial January 1, 2012 start date are expected to move forward on or after June 1, 2012. For additional information on these demonstrations please visit http://go.cms.gov/cert-demos
These demonstrations will begin after receipt of a paperwork reduction act (PRA) Office of Management and Budget (OMB) control number. The CMS posted a PRA notification from these demonstrations on February 3, 2012 at http://www.cms.gov/PaperworkReductionActof1995/PRAL/list.asp
The CMS significantly revised the Prior Authorization of PMDs demonstration in response to provider and supplier concerns. For more information on the adopted changes please visit http://go.cms.gov/PAdemo
The Part A to Part B Rebilling Demonstration began on January 1, 2012.
Click here to view Federal Register notice: https://s3.amazonaws.com/public-inspection.federalregister.gov/2012-02821.pdf
New Guidance on State Option to Put Dual-Eligibles Into Managed Care
Last week, the Medicare-Medicaid Coordination Office and the Center for Medicare, parts of the Centers for Medicare & Medicaid Services (CMS), released more detailed guidance to private insurance plan sponsors about the capitated financial alignment demonstration. This demonstration attempts to integrate financing and care for dually eligible individuals, or people with both Medicare and Medicaid. Under this demonstration, which was initially announced in July 2011, interested private insurance plans will enter into three-way contracts with federal and state governments. Those dual-eligibles subject to the demonstration will receive both Medicare and Medicaid coverage from private plans, including for long-term care services and supports. The demonstration is required to produce reduced Medicare and Medicaid spending, without adversely affecting—and ideally improving—the quality of care that dual-eligibles receive.
The memo generally describes how CMS and states will determine prospective capitated payments, as well as the adequacy of plans’ provider networks.
In addition, the memo includes timelines for both the approval of state demonstrations and the selection of participating plans. CMS anticipates that for this demonstration, beneficiaries who are affected will have effective plan enrollment dates of January 1, 2013. As a result, many key deadlines will occur in 2012: states will have to submit their demonstration proposals, insurance plans will have to submit their letters of intent and plan models, and CMS will have to review and approve both. The memo also sets forth key programmatic area requirements, explaining existing federal requirements for plans under Medicare and Medicaid, as well as pre-established or preferred requirements for the new demonstration. Many of the requirements under the demonstration are hybrids of the existing Medicare and Medicaid requirements, though some will be negotiated through the CMS approval process.
According to the memo, 26 states are still exploring the capitated financial alignment demonstration.
Read CMS’ guidance to “Organizations Interested in Offering Capitated Financial Alignment Demonstration Plans.”
The memo generally describes how CMS and states will determine prospective capitated payments, as well as the adequacy of plans’ provider networks.
In addition, the memo includes timelines for both the approval of state demonstrations and the selection of participating plans. CMS anticipates that for this demonstration, beneficiaries who are affected will have effective plan enrollment dates of January 1, 2013. As a result, many key deadlines will occur in 2012: states will have to submit their demonstration proposals, insurance plans will have to submit their letters of intent and plan models, and CMS will have to review and approve both. The memo also sets forth key programmatic area requirements, explaining existing federal requirements for plans under Medicare and Medicaid, as well as pre-established or preferred requirements for the new demonstration. Many of the requirements under the demonstration are hybrids of the existing Medicare and Medicaid requirements, though some will be negotiated through the CMS approval process.
According to the memo, 26 states are still exploring the capitated financial alignment demonstration.
Read CMS’ guidance to “Organizations Interested in Offering Capitated Financial Alignment Demonstration Plans.”
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