UnitedHealth 1Q17 Earnings Call Notes

Stephen Hemsley – CEO

Aren’t planning for any changes to insurance

“We have engaged with elected officials from both parties, and at the federal and state levels, to address improving quality, access, affordability, cost and satisfaction for all stakeholders. Affordability can be improved most in the immediate term through lower tax, and we hope Congress act soon to permanently repeal the health insurance tax, look forward further worsens consumers’ premiums, state budgets and senior benefits. We have though insight as to whether that will or will not occur, and accordingly, our plans continue to assume the taxable return in 2018, which will raise premiums and/or reduce benefits for commercial businesses, state and our nation’s senior population.”

We’d like to repeal the health insurance tax

“In our prepared remarks, we obviously focused on the health insurance tax. Because that, as Dan said, is going into the marketplace now for 2018. And that has an impact on affordability and the uptake of the participation in those markets. So we are strong advocate of repealing that and to taking that action as quickly as possible. Beyond that, we have engaged. We think pretty constructively around the notion of, and I think you can see this in our published materials on our Web site, that we see actually a marketplace that could be pretty constructive. But based upon more orientation to state based markets, more flexibility in the marketplace, really seeing Medicaid as the programs that have grown in effectiveness and to become broadly recognized as actually very efficient healthcare coverage for the populations to which they apply.”

Dan Schumacher

We support taxing us less

Sure. Good morning Dave. Obviously, from our perspective, we have been long supporters of the permanent repeal of the health insurers’ tax. At the end of the day, obviously, it just increases the cost of healthcare, makes it less affordable and compromises people’s ability to gain coverage. So we are certainly advocating along those lines. As we think about the tax itself, obviously, we’ve got to deal with it as it sits currently in loss, and so that’s what we’re doing. We’re planning accordingly. We’re incorporating and then pricing and also incorporating in our thinking as we plan our benefits in Medicare.

Cigna 4Q16 Earnings Call Notes

David Cordani

The real challenges for the healthcare system are aging populations, eroding health status and rise of chronic conditions

“Turning now to how we are effectively positioning our business for the future. In the United States, once again, we have a new administration advocating for health care reform and we expect the U.S. regulatory and legislative environment to be dynamic. That said, the core issues that have pressured health care markets more broadly and have recently challenged the U.S. Individual exchange marketplace in particular arise from the same market forces and pressures that pressure the status quo health care systems both in the United States as well as across the globe. More specifically, aging populations, eroding health status and the rise of chronic conditions all pose challenges for health care consumers individually as well as society at large. These forces in turn contribute to increasing demand for greater access to health care services and sense of security offerings that are both affordable and of high quality.”

Thoughts on entering North Carolina, Illinois, Virginia

“Our conclusion is within the current rule set, the only viable way to make this work is to have a well-coordinated, highly aligned, value-based care arrangement with the health care professionals that is the underbelly or foundation of the offering. Additionally, we’ve been able to successfully expand relationships with our Collaborative Accountable Care partners or delivery system alliances being physician groups or hospitals across multiple lines of business; Commercial, Medicare Advantage, Commercial Individual, et cetera.”

There are bright spots around the country of value based care

“Two sides, but let’s go to the first dimension. Indisputably as a country, we have an aging population, eroding health status and continued growth in chronic disease. Continuing to finance the access to care through traditional programs that simply attempt to, for example, push rates lower as a means of balancing budgets is running out of steam, period. Secondly, there are bright spots around the country of more innovative programs that state officials are driving to try to get more engagement of individuals and better value creation with health care professionals. That is resulting in changes in the delivery system, and there’s a lot of bright spots around the country where delivery systems, be they physician groups, multispecialty groups, integrated hospital systems are aggressively exploring how they could do more value-based care. All those forces are changing. I wouldn’t limit it to any one. All those forces are changing. But at the cornerstone is an increasing demand and need for care to be delivered and coordinated and the need to explore new solutions.”

ACA affected more than just individual insurance

“Specific to repeal and replace, and I appreciate you using that language, because I think repeal and replace is being used as language that is relatively broad sweeping, so as you very well know, the ACA had an impact, based on the way you asked your question, on the employer market, on the MA market, on the Medicaid market, as well as on the Individual market. And what we see happening today versus eight years ago is that there’s a need for a change unequivocally, but there’s also a lot of bright spots that have evolved over the last eight years. For example, in the employer market, there’s way more adoption today of incentives, engagement and value-based care programs. MA has further evolved even more broadly adopting value-based care programs. As I noted in a prior comment, there are states that are changing Medicaid programs and evolving them to be more incentive or engagement based as we go forward. As it relates to the individual program, as noted by several people’s questions, the marketplace is still unsustainable. And there’s a lot of pressure to put a series of transparent changes in place for 2018 in the near future because organizations will have to make determinations in the spring of this year.”

Tom McCarthy

Costs grew at low end of 4%

Turning to medical costs, we continued to deliver medical costs that reflect better health outcomes and strong clinical excellence for our customers and clients as a result of our deep collaborative relationships with physicians and our focus on personalization of care. For our total U.S. Commercial book of business, full year medical cost trend for 2016 was modestly below the low end of our previous guidance range of 4% to 5%.”

Aetna 2Q16 Earnings Call Notes

Aetna (AET) Mark T. Bertolini on Q2 2016 Results

We are in the process of defending against Justice Department

“As most of you are aware, we are in the process of defending the Justice Department lawsuit to block our proposed acquisition of Humana. The DOJ action ignores the simple fact that there is robust competition in Medicare, as evidenced by, all Medicare eligibles are free to choose between traditional fee-for-service and Medicare Advantage, and approximately 70% of the Medicare eligible population chooses traditional Medicare.”

reassessing level of participation in exchanges

“In light of the disappointing year-to-date performance, and updated 2016 projections for our individual on and off exchange products, combined with the significant structural challenges facing the public exchanges, we believe it is only prudent to reassess our level of participation on the public exchanges. Our initial action will be to withdraw our 2017 public exchange expansion plans. ”

Losing $300m this year in ACA business

“We expect the year to have a loss on ACA business of – in excess of $300 million. We are evaluating our footprint as it exists today to understand what solutions we can put forward to either fix the business, or exit the business. And so we’re going through that analysis now. As you know, there’s a short window to divestitures. But the simple – the solutions here are really two.

The problem with exchange is that the current risk adjustment mechanism does not include specialty pharmacy

“First, let me make the comment that the people that are seeking care through these exchange products need this care. So these aren’t people running off to get services that they don’t need. These are people that need the care that they’re getting. What we’re seeing in the exchanges is double-digit trend year-over-year, overall. You can double that when you talk about pharmacy. And you can triple that initial number when you talk about Specialty Pharmacy. So we have two very important things going on in the exchanges here. First, we now believe we have third parties paying premiums for special interest groups both in a small group and individual that are supporting people getting access to these services. And because of that, we have – while we have the same demographic mix in this population, we have a much higher intensity and morbidity in that population, largely around Specialty Pharmacy. So given that the current risk adjustment mechanism does not include pharmacy, we’re not actually – nobody is getting adequately reimbursed, and given that the risk adjustment mechanism is a zero sum game, there is no way to fix this unless we include pharmacy, we deal with the eligibility requirements of third party payers paying premium, and we find a way to cover these individuals.”

Issues must be addressed around eligibility and risk adjustment

“Kevin, let me – this is really a balance sheet discussion and what happens to our capital and how big the loss could get. Unless some of these issues are addressed around eligibility and the risk adjustment, this could get a lot worse. And so we have to evaluate each market by its level of volatility, the other competitors, our amount of share in that market and whether or not it’s appropriate for us to take that risk absent any other changes in the program.”

Shawn M. Guertin – CFO, Executive VP & Chief Enterprise Risk Officer

23m members

” We ended the quarter with 23 million medical members, essentially flat with the first quarter of the year. We grew operating revenue by 5% over the prior year to a record quarterly level of nearly $16 billion, driven by higher healthcare premium yields and membership growth in our Government business, partially offset by membership declines in our Commercial Insured products.

Expecting MLR at 82%

“We now project that our full-year total health medical benefit ratio will be in the range of 82% to 82.5%. The increase from our previous projection is driven by our updated view of our ACA products. Based on our improved outlook and adjusted operating revenue and continued cost control initiatives, we now project that our operating expense ratio will be approximately 18%.

Anthem 2Q16 Earnings Call Notes

Anthem (ANTM) Joseph R. Swedish on Q2 2016 Results

39.8m members

“Within membership, both fully insured and self-funded membership are tracking ahead of expectations as we ended the second quarter with nearly 39.8 million members. This reflects growth of an additional 148,000 lives during the quarter, bringing our year-to-date enrollment growth to 1.2 million lives, or 3%.”

We’ve been active participants in the exchanges

“We’ve been a very active participant in the exchanges from the very beginning, and recognize the markets have taken longer than expected to stabilize, and we’ve stated that repeatedly, and I think we’ve been working very closely with the administration and conducting our own modeling to best judge how we’re going to continually engage year-over-year in as profitable a context as possible. It’s interesting to reflect back at the end of the first quarter, we told you that – end of June 30, we’d probably have greater insight into the membership we’ve captured, recognizing that we had a substantial uptick in membership. It deteriorated a little bit at the end of Q2 to around 925,000 or so members.”

We’ve noticed that we’re dealing with a lot of chronic illnesses on the exchanges

“But what we’ve observed in terms of the intensity of illness is that as, John pointed out in his earlier remarks, we’re dealing with some chronic illnesses like cardiac, diabetes, COPD, we’ve had what we think is a material uptick in dialysis cost that have hit us. So we’re going through an appraisal of all of that in terms of how to better medically manage those members as well as begin pricing it into 2017. That’s the trick. I think John has stated it and I’ll restate it. We believe we’re well positioned for pricing in 2017 given what we now know about the membership we’ve captured. And so, I guess, when you put all that together, what we’re waiting for now is rate approvals by state, and I can assure you that we’re going to be extremely prudent in our continuing engagement.”

John E. Gallina – Chief Financial Officer & Executive Vice President

One thing that would accelerate stabilization of exchanges would be to eliminate the health insurer tax

“Other things that would certainly help the acceleration of the stabilization would be to eliminate the health insurer tax beyond 2017. The risk adjuster model, it does a lot of what it’s intended to do, but quite honestly, there’s a bit of an imbalance that it overcharges for healthy and over-reimburses for certain moderately unhealthy disease states.”

UnitedHealth 2Q16 Earnings Call Notes

UnitedHealth Group (UNH) Stephen J. Hemsley on Q2 2016 Results

Revenue grew 28% y/y, 132m insured

“For second quarter 2016, UnitedHealth Group revenues grew 28.2% year-over-year to $46.5 billion, with all domestic lines posting double-digit growth, as we grew to serve 132 million unique individuals. ”

David Scott Wichmann – President

Medical cost trends growing at 6% per year

“Commercial medical trend remains consistent with the original outlook of 6% plus or minus 50 basis points. Hospital inpatient admissions per person are lower year-over-year across all UnitedHealthcare businesses. Like most years, there are pockets of higher cost trends, including specialty pharmacy and the increasing use of ER and outpatient services this year. Overall, health care cost trends remain in line and controlled.”

Aetna (AET) Q1 2016 Earnings

Aetna (AET) CEO Mark Bertolini said they are attempt to transition the health insurance marketplace to one of value based care from one of quantity based care

Our strategy to achieve this mission in part involves working to transform the health care system model to one in which hospitals and doctors are rewarded for delivering real value to patients and consumers. Our differentiated approach focuses on meeting providers where they are in terms of their readiness for varying levels of coordinated care and risk. We are applying our proven framework to support the advancement of value-based care models and move providers up the continuum from simple pay-for-performance models to ACOs and even joint ventures.  We’ve made good progress in the first quarter and now have 77 ACO agreements and approximately 40% of our claims payments running through some form of value-based care model. Based on our progress to date, we believe we remain on track to achieve our 2020 goal of 75% of claims in value-based care models and our broad mission of creating a healthier world.”
Strong growth in their government business
“Shifting to our Government business, which continues to be a key source of growth for the company. We grew medical membership by nearly 150,000 members in the quarter, including growth of 81,000 in Medicare Advantage; 46,000 in Medicare Supplement; and 22,000 in Medicaid members. Additionally, we grew Medicare PDP membership sequentially by over 470,000 members. As a result of this strong medical membership growth, we grew our first quarter 2016 Government premiums by over 13% compared to the prior-year period, achieving a record $6.5 billion. Government premiums now represent nearly 50% of our total healthcare premiums.”
Downward trend in facility day usage
We’re not seeing an increase on the facility side at all. As a matter of fact, we continue to see a trend downward in facility day usage. And so our view would be that this is probably related to a few instances, most likely related to flu. And maybe leap year. I mean, leap year is always a mystical thing for me. One day actually makes a difference, but it does.”
The Southeast is the has seen the strongest growth for their individual ACA insurance exchange marketplace product
We are seeing the growth in the markets where we have very good cost structure, particularly in the Southeast. So Florida was a big growth for us, now Georgia and North Carolina as well. We saw about 55% coming in from new business and, generally speaking, we have 75% of our membership in our top five states.”


Aetna 4Q15 Earnings Call Notes

Aetna (AET) Mark T. Bertolini on Q4 2015 Results

Believe we remain on track to close Humana acquisition in 2H16

“Beginning with the Humana acquisition, we continue to work diligently with the Department of Justice and with state regulators toward final approval of the transaction and continue to advance our integration readiness plans. We have obtained seven of the necessary state approvals required to close the transaction and we believe we remain on track to close in the second half of 2016.”

We have serious concerns about the sustainability of public exchanges

“despite our improved finish, this business remained unprofitable in 2015, and we continue to have serious concerns about the sustainability of the public exchanges. Specifically, we remain concerned about the overall stability of the risk pool, including enforcement of standards related to special election period enrollment, where CMS has made some recent changes, but more needs to be done. The lack of predictability and full transparency of the risk adjustment program, which is key to long-term program health, especially as the other two premium stabilization programs expire in 2017; and newly-proposed CMS regulations on network adequacy and standardization of benefits that would limit our ability to offer affordable, innovative on-exchange products. We continue to work constructively with CMS and lawmakers to set this program on a more sustainable path and achieve the underlying goal of making healthcare more affordable and accessible.”

Small group market remains rational

“the market remains rational from a pricing standpoint. We don’t see any unusual behavior, more so this year than in other years. So we see this as a rational environment.”

Seeing a slowdown in private exchanges as a employers didn’t see rate stability

“Well, I think first on private exchanges, we’re seeing the slowdown we anticipated as a result of employers who have tried it, but didn’t see the rate stability that they want to see and have pulled back, particularly on the fully insured segments and moved back to ASO. And so, that’s a sign that there need to be better proof points.”

Shawn M. Guertin – EVP, Chief Financial & Enterprise Risk Officer

Not seen any disruption from move to ICD 10

“Well, it’s certainly an issue that we have watched carefully during the quarter. We have not really seen any meaningful disruption as a result of ICD-10, and I suppose that is one of the silver linings of having a long time to get ready for this as a broader industry. But it is something that we are definitely paying attention to carefully throughout the quarter and frankly even into the beginning of this year as wel”

UnitedHealth 4Q15 Earnings Call Notes

UnitedHealth Group’s (UNH) CEO Stephen Hemsley on Q4 2015 Results

2016 is off to a strong start

“2016 is off to a strong start considerably stronger than 2015. Our initial growth trends are very encouraging and our service performance for new January business is strong. Optum’s revenue backlog and pipelines have never been stronger. Medical cost in the fourth quarter trended slightly better than expected and we are confident, our benefit businesses have appropriately priced our products for 2016.”

Expect that exchange members will decline over the course of the year. Have withdrawn products

“Turning to exchanges, we expect to start the year at around 700,000 or fewer public exchange members and expect these numbers will steadily decline over the course of the year. We are not pursuing membership growth and have taken a comprehensive set of actions to contain membership and sharpen performance over the balance of 2016. We have withdrawn platinum products, increased prices, eliminated marketing and commissions, intensified clinical engagement and medical management with this membership group and reduced operating cost as appropriate.”

Aetna 2Q15 Earnings Call Notes

The Humana acquisition will accelerate our growth in Medicare Advantage

” the acquisition will substantially accelerate our ability to grow in Medicare Advantage. Aetna’s current Medicare Advantage footprint covers approximately 45% of the Medicare eligible population. The combined companies serve 4.4 million Medicare Advantage members, representing 8% of today’s 54 million Medicare beneficiaries, and will expand our geographic footprint to cover approximately 90% of the Medicare eligible population”

We think the deal will go through because there will still be plenty of competitors in each market

“On the regulatory approach, we’ve already filed our HSR. We’re starting to file in a number of states. We need 20 state approvals for Form As. We’ll file our S4 in the next couple of weeks. And so all of that, since the process is underway, we’ve engaged in conversations with insurance commissioners, with governors, with Washington, and we are most concerned about staying on our strategy, our point of view.

We’re doing deep analysis, even deeper than we did before the deal on a number of competitors by market the plans offered, the opportunity to divest. I think if you all do your homework like you have been on all of the competitors in each market and look at the markets where we may need to consider divestiture, there are plenty of competitors left in the market.

And so, I think our comfort is in the actual analysis at the end of the day, we will still be 8% of the overall Medicare market on a combined basis. We will be big in some markets where we may be have to divest. There will be plenty of competitors in each market.

And quite frankly, I think the bigger issue at the market level, where this analysis will occur, is the level of market share that the blues hold, which is really the dominant competitor in each market.”

UnitedHealth 2Q15 Earnings Call Notes

$150B in revenue projected

“we now expect 2015 revenues to be $154 billion, earnings to be in the range of $6.25 to $6.35 per share and cash flows from operations to be $8.4 billion to $8.6 billion.”

Revenues grew 10%

“Second quarter revenues grew a strong 10% organically to $33.1 billion, while operating margins were steady at 6.1%”

Medical care ratio improved despite big growth in higher care ratio lines

“The UnitedHealth Group consolidated medical care ratio improved 20 basis points year-over-year and throughout the first half medical costs were well controlled. The year-over-year decrease in the care ratio occurred despite the growth of about 1.3 million people in Medicaid, Medicare Advantage and public exchanges, all higher care ratio businesses.”

Medical cost trends in lower range of 5.5-6.5%, care ratio at 80%

“The 2015 commercial medical cost trend outlook continues to be biased towards the lower portion of our 5.5% to 6.5% full-year forecast and we continue to expect a full year consolidated care ratio of 80.8%, plus or minus 50 basis points.”

Our process to control expense

“it starts first with a benefit design that rewards consumers for better choices and then we are aligning it with provider relationships that incentivize more appropriate use of health resources. And then we overlay our medical management on that. And that starts with our people and we have got people in UnitedHealthcare and Optum across facilities, across the country as well as in neighborhoods, as Dave mentioned and in people’s home and when we look at the combination of all those things, we have been able to drive a very consistent utilization trend across all our businesses within the UnitedHealthcare portfolio and again, well within our expectations.”

Not seeing anything unusual in terms of utilization

“So your comments about what you seeing and others around hospital use and so forth, specifically on that, we have not seen anything outside of normal seasonal variation. So it’s all in keeping with our expectation. And I think it’s important to remember, as we have talked before, we have got a lot of visibility on the hospital side, who is coming in, who is there, who is leaving, how we are interacting with them, facilitating their just discharge and so forth and this is really a strength of our company and we continue to drive absolute reductions in per capita hospital usage and we been talking about that for the last six years.”