Health Insurers to Investors: We’re Good. Health Insurers to Lawmakers: Please Help.
Source: ProPublica, by Isaac Arnsdorf
Executives at Cigna, the health insurance giant, have signaled to investors that the coronavirus pandemic isn’t hurting the company’s business and might actually be a boon.
But that hasn’t stopped the trade group that represents Cigna and other health insurers in Washington from asking lawmakers for aid.
Last month, as the coronavirus outbreak sent the stock market into freefall, executives conferred with equity analysts at major investment banks — a key way for companies to communicate with investors. In a four-hour virtual meeting with analysts at global investment bank UBS, Cigna’s CEO and other top executives explained that although they were seeing higher medical claims for treating coronavirus, those costs were being offset by hospitals’ canceling elective surgeries and other procedures.
As a result, the executives said, they did “not see COVID-19 having a material financial impact,” according to the UBS analysts’ report on the conversation. Cigna advised that it might even have the resources to take over rivals or buy back its own stock, according to the March 20 UBS report.
Cigna’s management also gave a bullish impression to Goldman Sachs analysts. “The company did note that it has seen elective procedures decline already, which could help offset any incremental pressure from the novel coronavirus,” the analysts wrote in a March 19 report. Cigna’s leaders told Goldman Sachs that they did not expect “a significant impact” on the percentage of premium income that gets paid out in claims, known in the industry as the “medical loss ratio” or MLR.
Cigna’s stock is recommended by 25 out of 27 analysts who cover it as of April 28, according to ratings compiled by Bloomberg.
But America’s Health Insurance Plans, the powerful health insurance lobby, is telling a different story in Washington. AHIP represents Cigna as well as top rivals like Anthem and Humana, along with more than 150 other health insurance companies. Cigna CEO David Cordani chairs AHIP’s board.
To lawmakers, AHIP made it sound like insurance companies were squeezed from both sides. “Health insurance plans are bracing for an extraordinary increase in costs related to treating patients with COVID-19 infections,” AHIP said in an April 8 letter to Congress. The letter made no mention of offsetting savings from deferred elective procedures. “These much higher health care costs must be borne at a time when premium dollars are shrinking,” AHIP said, referring to businesses’ laying people off and struggling to pay their bills.
To compensate, AHIP proposed that the federal government provide subsidies to employers and individuals to keep their insurance coverage, as well as funding for a program to help commercial insurance plans that incur “extraordinary, unplanned costs” from COVID-19.
The letter also asked Congress to fund relief programs to support Medicare Advantage and Medicaid plans that are privately managed by companies like Cigna.
Cigna’s spokespeople did not respond to repeated requests to reconcile executives’ bullish comments to analysts with the gloomier perspective in AHIP’s letter.
AHIP spokeswoman Kristine Grow said the pandemic’s impact on insurance companies is uncertain and variable across the industry. The group’s policy proposals are aimed at making sure people can keep coverage now and that future prices don’t spike, Grow said.
“We’re not through this crisis yet,” Grow said. She added that the savings from postponed elective procedures is likely to be temporary as those surgeries will eventually take place and need to be paid for.
AHIP’s CEO, Matt Eyles, faced a direct question about the apparent upside for insurance companies on an April 14 conference investor call hosted by Bank of America. One bank analyst, Kevin Fischbeck, said it was surprising to hear AHIP asking for government relief when the industry appeared poised to benefit.
“I have never seen a drop in utilization the way we are seeing it happen right now, so in some ways it’s a little bit surprising to me that the industry is looking for support on risk corridors and things like that,” Fischbeck said. “A lot of investors at least are thinking this could actually be a positive for managed care.”
Eyles downplayed the likelihood that insurers will profit from the pandemic. “I think it’s a little too early to know, because we are just getting some of the data on what the various sort of costs are and the delays in procedures and how it will come back,” he said. “The range of outcomes is so uncertain.”
Cigna is not the only insurer poised to gain. A model developed by UBS analysts shows insurance companies will benefit if up to 14% of the U.S. population is infected with COVID-19, according to a March 30 report. That would be about 45 million people, compared with just over 1 million confirmed infections so far.
Insurers’ fortunes contrast with hospitals and doctors’ practices, which have resorted to layoffs, pay cuts and furloughs as their revenue suffers from the loss of non-coronavirus patients.
“With many medical care providers overwhelmed by coronavirus-related demand influxes or lost cash from cancelled elective procedures, it is easy to overlook one group that might actually have excess because of the crisis: insurance providers,” Chris Meekins and John Ransom, analysts at the investment bank Raymond James, said in an April 15 note to clients. “As it stands, the costs associated with the virus pale in comparison to forgone elective surgeries.”
Insurance company profits are generally capped by the Affordable Care Act, also known as “Obamacare.” The law requires large plans to refund customers if medical costs amount to less than 85% of premiums — known as the MLR.
However, the law authorizes the secretary of health and human services to adjust the MLR requirement if maintaining it would destabilize the market and reduce consumer options. Investors are speculating that such a waiver could be used to allow insurers to shore up reserves amid the pandemic, according to the Raymond James analysts.
“Perhaps the secretary will provide further exemptions for insurers given the substantial extenuating circumstances,” Meekins and Ransom wrote. “The argument could be made that delayed surgeries from this year will be made up in future years and could increase MLRs disproportionately down the line.”
Insurers say they’re helping out in the pandemic by expediting payments, expanding telehealth access and making accomodations for financially stressed providers who need claims income and for businesses and individuals who are struggling to pay premiums. The second coronavirus response bill required insurers to fully cover testing costs. Companies have gone further, saying they’ll waive patient costs for COVID-19 treatment.
“No patient should have to worry about the cost of COVID-19, and the actions by so many plans across our industry have eliminated that concern,” AHIP said in an April 6 letter to the American Hospital Association.