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In this episode, Marcus and Vic are joined by healthcare policy expert Emily Evans for a detailed Q3 2024 review. They discuss the rising challenges in Medicare, driven by an aging population and increased healthcare utilization, along with the growing costs in employer-sponsored health insurance. Emily highlights key trends such as Medicaid redeterminations and their impact on healthcare providers and insurers. The conversation also explores the effects of benefit costs on consumers and the ...
In this episode, Marcus and Vic are joined by healthcare policy expert Emily Evans for a detailed Q3 2024 review. They discuss the rising challenges in Medicare, driven by an aging population and increased healthcare utilization, along with the growing costs in employer-sponsored health insurance. Emily highlights key trends such as Medicaid redeterminations and their impact on healthcare providers and insurers. The conversation also explores the effects of benefit costs on consumers and the potential implications of the upcoming election on healthcare policy, Medicare, Medicaid, and insurance coverage.
00:00 - Intro
1:25 - Insured Medical Consumer Model
3:54 - Employee Contribution To Health Insurance Coverage
8:20 - Ratio Of Employees To Insured 2021 - 2020
10:59 - PDP Enrollment
25:55 - Distribution Of Medicare Population
32:46 - Share Of High Medicare Utilization Cohorts 2013 - 2023
37:52 - Medicaid Enrollment | Trouble Spots
41:30 - Debrief On The Data
Every week, healthcare VCs and Jumpstart Health Investors co-founders Vic Gatto and Marcus Whitney review and unpack the happenings in US Healthcare, finance, technology and policy. With a firm belief that our healthcare system is doomed without entrepreneurship, they work through the mud to find the jewels, highlight headwinds and tailwinds, and bring on the smartest guests to fill in the gaps.
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Thank you.
All right.
Emily Evans, welcome back to Health Further.
Um, Vic is out of town, so we're all on Zoom today.
And, uh, it's October 15th as we're recording this.
Um, United Health Group did their, uh, um, their public investor Report today.
Um, and as always, we have you coming in at the end of one quarter, beginning of the next quarter to kind of give us, uh, just the, the theme that you are most tracking.
Right.
And, uh, this time I think we're going to dig into this storm that is all things Medicare.
It's, it's been the last week at, just so you know, Emily, last week at Nashville healthcare sessions, this was basically the theme.
Sort of the, the, the impending sense of doom around Medicare and the uncertainty around it.
Um, so you, you, I'm glad
they're catching up.
Oh yeah, no, I wanted to let you know that the industry is, is definitely getting the, the message about what's going on here.
Um, but you've, you've got some good data points that we'll just all talk through and, and, uh, I guess I'll go ahead and share the screen and get this started and turn it over to you.
Okay, great.
Let's let's start here with your overview of the consumer model.
Yeah, and let me preface this by saying United Health Group reported this morning and one of the key takeaways was an increase in their benefit ratio, which means that people that they're.
they're paying more for, uh, for their members, uh, to get, to get treatment.
Uh, and, uh, and, and they cited, you know, some problems with Medicaid and they cited higher utilization, but I actually think there's, there's a lot more at play here, which, which actually would suggest not a, problem for a few quarters, but actually a problem that's going to stretch, you know, through the next, uh, decade or so.
Uh, and, and I've been talking about this for about a year, so I'm glad, uh, glad to hear the industry's catching up, because it is, uh, it is definitely a, um, a problem.
Uh, a change.
So what we do is we, we, we have a model where we keep track as best we can as to who's insured by, by what, how do they get their, their health insurance.
And, and this model is, you know, based on recorded data through June, Medicaid is a very much a laggard when it comes to reporting data.
So we forecast that and that's.
That's what the pink bars are to the right.
We have real recorded data for Medicare on a monthly basis.
Um, and this is, uh, through September and we have to model the Affordable Care Act, uh, marketplace and that's the, the, the dark purple.
Uh, and we model that based on, uh, treasury receipts and, and some other tools at our disposal.
Uh, but as, as you can see, uh, you know, health insurance coverage in America is extremely robust.
Uh, it is, uh, you know, that you add up all those bars through August, you're talking about about 300 million people.
There's about 320 million people in this country.
Um, some of their, some of that, uh, charts got duplication, you know, because if you're insured, uh, through your employer and you're on Medicare, you would, you would show up twice.
But nonetheless, you have just an extraordinarily robust, um, uh, health insurance coverage, which of course is the goal, uh, and was the goal of our federal policy and a lot of state policies since, uh, you know, around the 1990s.
So a goal achieved, right?
Right.
Okay, so if we look at the next one now, there's a few trends I want to talk to you both about, uh, that I think tell us that we are at an inflection point, and in healthcare, of course, inflection points could last for years, right?
But, uh, but the better you, the, or sooner you know about it, the, the, the better you are.
Uh, although, you know, as I've learned not too soon, you don't wanna figure it out too soon.
Um, but in, uh, one of the trends that became kind of clear in 2021, but I was waiting to see what 2022 data, uh, or, or what 20, 23 data would tell me.
Um, and this is, um, this is a, a annual survey.
Kaiser Family Foundation does.
We're going to see 2024 data this month, which, um, will help us know whether our trend that we're tracking here is, uh, is, is real, or is it, um, uh, is it something that is Yeah, is it a blip?
And so if you look at family coverage, um, and you see to say to the left of 2019, you can see family coverage and single coverage, the percent that the employee is asked to pay.
Kind of right there in line, right?
Not perfect, but you can see the relationship.
Beginning around 2019, but certainly by 2021 and 2023 with this dip in 2022, which I am told is a result of actuarial calculations due to utilization trends.
This is a theme you guys are going to hear more about in a minute.
Um, the, the employer sponsored.
Plan is trying to shift as much of its employee's family to another insurer.
Now that could be a spouse who is working and is employed and will take that because, uh, because that particular, uh, employee plan is employed.
Is is more robust, like if you had a spouse working for the government, for example, um, or it's because, you know, they're just haven't caught up and you're doing a little arbitrage play.
Uh, we don't know, but you're definitely seeing a shift, uh, towards, uh, okay, we're going to, we're going to ensure the employee.
We're going to provide great insurance for the employee.
But your family is a little more on their own.
We're going to make less of a contribution, uh, for your, for your family.
Uh, this has the effect of kind of breaking a little bit of that social contract on which the whole premise of employer sponsored health insurance is made, which is, which is, you know, you're an employee, your family is with us, we're all kind of in this Social contract together and this is eroding that somewhat the Affordable Care Act family glitch rule Uh is is likely contributing to that which allows people if they can't be insured by the employee the employer Um, there isn't a spouse who can pick up the insurance.
You can go to the affordable care act plans, uh, and, and use, use those, which is something we could not do before 20, uh, 21, when the Biden administration reversed, uh, the Obama administration's, uh, take on that.
So
next slide.
And probably reversed.
And the
courts are going to reverse it.
I mean, you had, you had a, uh, you had the, the, the justice department, I mean, you've got this, this file, you know, two inches thick saying you cannot change this.
And then Biden went and, and changed it and the courts will.
tear that down.
So, um, I'm mentioning it because it has, it's having this effect, but, but ultimately I think it'll, it'll, it'll be, those people will be stranded, uh, and they will either just have to, you know, buy individual insurance, buy individual
insurance.
Wow.
Or employers are going to have to adjust.
We'll, we'll, we'll see how that, how that plays out.
And
that's not a good, that's going to be something important to track because that would, that will be quite expensive for households.
If, if in fact, You have to sort of go person by person in a household.
Yeah, that's, that's right.
This is something else that we've been keeping track of because of the family coverage being, um, punished, if you will, by, by employers asking employees to pay more, uh, Share of that family coverage.
What you've seen is a decline in 21 and then in 22 and again in 23, uh, uh, by the of the ratio of, uh, of employed to insured.
The District of Columbia being a very notable exception, the District of Columbia, of course, employs a lot of federal workers.
Those federal workers are typically two income families, and the federal health insurance program is extremely robust, uh, so you, you, you just don't see that kind of decline.
But if you go and you look at, you know, say, New Hampshire or New Jersey, You've seen a fairly pronounced, um, pronounced decline in the number of people insured under a particular, uh, under a particular employer plan.
And again, it's the shift, get the family off of the employer's insurance, you know, take care of the employee.
Uh, and, uh, and that, I think that's going to continue to be, uh, Uh, a challenge for, uh, for the affordability of health insurance, uh, simply because, you know, if you're, you're taking a bigger, if the employee has to pay a bigger share of the insurance, you know, they're more likely to go.
Nah, I can't do it.
Uh, and, and, and roll the dice, uh, which is, um, which is unfortunate, but that's, uh, the result of high costs.
So I'm just eyeballing this chart, but it does look like quite a drop, um, in, uh, quite a drop in.
California.
Is that right?
Yeah, that would make sense.
California
is, you know, such a heavily regulated state that insurance is high and the provider costs are so high.
Yeah.
Um, and also looks like a, a not insignificant drop in, um, New York as well,
um, not insignificant.
Interestingly, uh, look at Utah.
Uh, Utah's pretty tight.
So Utah as it has one of the highest ratios of employed, uh, individual to, uh, to insured individual, because, you know, the, the influence of the Mormon faith and, um, and the size of the families, uh, and, and so they're, there's, they're sticking with their social contract, uh, in a lot of ways
in Utah, they, they, they are, they're, they're very committed to their social contract there.
Yeah, okay.
So then, uh, so that, that's, that's the kind of the worries in the employer, uh, sponsored insurance commercial.
And, and that's important because that's where the margin is for providers.
Um, I will also say that's where the sclerosis is, right?
Because provide, but employers just don't seem to want to, you know, innovate at all.
But, uh, but that's definitely where a lot of the margin is because it's commercial insurance.
Can you, can you just say a little bit more about.
Um, the challenge of the margin and commercial insurance and how that ties to the employers pushing, um, you know, families, uh, just by, by virtue of lowering their contribution to the, to the family plan.
Yeah.
And it depends, it depends on where the family goes.
All right.
But,
but
if, if you typically an, an employee, uh, an individual in employed by, say, a self insured commercial plan, and that could be anybody employed at a entity that says have over 75 people that, that would be, you know, a common, uh, common scenario.
Um, in that case, uh, what you're, um, what you're, you're, you're, you're doing is in that case, the the, The providers, when they're paid by that employer sponsored insurance, they're usually paid two times the Medicaid rate, sometimes three times the Medicaid rate.
Uh, and it is where a lot of the margin happens in the provider space, particularly in the, um, amongst the hospitals, uh, where they will, uh, they will, don't ask me why, but employers will pay premium prices, uh, at at local hospitals for, for they're insured, and that's where a lot of the, the, you know, the bread and butter is for, for the providers in a particular community.
Uh, and so, sorry,
I'll, I think the reason why is competitive labor markets, when they are competitive, It then swings to that they want certain health systems or providers in network, and so the ASO book ends up being more competitive than the commercial, than the recovery book.
Um, yeah, but I would think that I would think that the way in which consolidation has happened that they would have been a like, you know, like the city of Nashville, you know, that's a huge plan.
Yeah.
You would think that they would have done a better job of, of negotiating those rates, but, um, cause 200 percent of, you know, Medicare rate of the medic, it's a little egregious.
Right?
How about, how about 125% or 130?
Vic: Yeah, I, I just don't think that the a SO book on behalf of the employers.
They're not incented like that.
They want to make sure they get, uh, I don't know, the Vanderbilt, uh, pediatric hospital in network, and then their customer, Nashville City Government, is not that price sensitive.
Right.
Yeah, that's the question is how long is that that going to endure, right?
Um, but the, but the, the, the, that's in this industry, the, the setup is commercial.
Yay.
Awesome.
Right.
Uh, Medicare.
Okay.
Medicaid and until certain changes recently were made, which which now allows Medicaid to compete more with commercial.
But that's how the industry is, you know, always looked at the that mix of business, you know, becoming the case.
But one, one final thing I want to say, and then you've got some other talking points.
I want to make sure we get to, but there is an interesting circular dynamic there where, um, This is exactly where the certificate of need and price transparency and all of those things that that, um, limit the impact for competitiveness specifically at the health system level in communities plays to the disadvantage of employers.
And I feel like Because employers are not in the business of healthcare.
They sort of outsource all this to brokers for the, for the most part.
Right.
I think that's the other thing.
Lawyers are just not really actively playing this game.
They're doing it out of necessity.
Not because this is their fundamental game.
I think as the cost continues to go up, we might see that change, but, but they're going to lose, you know, in those negotiations because they're just not, um, they, they don't have a lot of optionality.
Right.
They don't have price transparency.
And at the end of the day, as you said, the employer is in the position where, uh.
They are looked at because of the implied social contract as on the hook for this anyway, and providing what the employee wants here, right?
So, um, so the only way out is not going to be negotiating better rates.
It's going to be changing what they're willing to do for the employee.
I think that's right.
And, and I think the, the, um, the, I mean, how many CEOs do, you know, can't wait to talk about benefit expense, right?
You know, they just, they just, that, that that's right down there in the SG& A line, please do not bother me about it.
Right.
Um, and, and they, they just, they, They just, just like, it never makes it to the C suite.
It stays in HR and they, they proceed to do whatever, you know, they, they need to do not to attract any, any attention from the, from the C suite.
So, um, so let me move on to, uh, some of the crisis in Medicare, which, which actually is If I want to rank order the problems here, uh, Medicare is presenting us with some very significant, uh, issues, um, and then after that, somewhat Medicaid, but then finally, I would say that the, the, the, the commercial and employer sponsored, uh, less so, but one of the things that happened in 2020, Uh, it is part of the Inflation Reduction Act, which passed in early 2022, uh, is that it redesigned the prescription drug benefit in Medicare, and in effect moved the risk of higher drug prices and higher, more expensive therapies, uh, you know, to the, um, plan.
It was originally with the government.
So the government would pick up 80 percent in the catastrophic phase.
So over at that time, you know, a 5, 000 deductible, it would move, they would pick that, the government would pick up, you know, that 80 percent in the plan, uh, would, would get the, have to pay, I think, uh, 15 percent in the manufacturer, 5%, which of course results in what?
You know, the plan saying, oh, let's buy the most expensive drugs we possibly can, you know, because we'll get, we'll get that patient up into the catastrophic phase, and it'll be the government's problem, not ours.
Well, that's flipped now, um, and the, the, the government is, is paying a smaller share, the plans are paying a larger share, uh, and the plans, uh, have to adjust for that, and one of the things that's been ongoing for a while, Is trying to get people out of the prescription drug plan standalone plan typically paired with traditional medicare Get them out of that and into a medicare advantage plan paired with prescription drug benefit uh, and you can see this kind of steady decline through 17 and 18 as the um as the the prescription drug plans provided incentives to get people to switch to a Medicare Advantage and PDP plan.
Uh, it, it, it was, it was, so that was just process.
Now you see this vertical line in January of 2024, it makes it look like that's been reversed.
Well, no, it hasn't.
What happened was the federal employees, um, Health plan moved its Medicare eligible, um, population onto the PDP, uh, standalone PDP plans.
And that's, that's why you see that effect.
So the, the decline is going to be restored here as we, we move, you know, to the right.
Uh, and, and what you're going to see is a continued decline.
CMS has said, okay, we're going to do this demonstration because what's happening is premiums are doubling in the prescription drug benefit and we can't have that in an election year.
Um, so, uh, so they've come up with this demonstration.
Which has got no basis under the Affordable Care Act demonstrations, but whatever, you know, maybe it buys them time until, you know, somebody stops them in early 2025 and maybe it works out, we'll see.
Uh, but the fact of the matter is the benefit expense that is driving the doubling of those premiums is going to be It's not going anywhere, you know, you can have a demonstration.
It's still going to be there, uh, when the demonstration is over or when the court and the court says you, you, you can't do that.
This is an important problem because if you cannot get access to standalone prescription drug plan, or you can't afford it because it went from 50 bucks a month to 150 bucks a month,
right?
Your options are Medicare advantage paired with PDP plan.
Or, or, or nothing, you know, direct
plus drugs or whatever.
Right.
I mean,
yeah, right.
Who's gonna, who's going to, you know, go with traditional Medicare without a prescription drug plan.
The cost for a lot of people at that age level is, is the drug is, is the drug.
So, um, so this is the, you know, the progressives in Congress hate this because they do not want.
And they don't want any incentives for Medicare Advantage.
Um, and, and that's what they've actually created.
Nonetheless, so this is, this is a political problem.
Um, it's certainly a benefit ratio problem, but it is first and foremost a political problem.
So, so we, so we have, um, on one end, we have the pressures of the star ratings,
Yes,
that are that are making Medicare Advantage a far less, um, attractive and maybe even palatable.
You know, model for managed care organizations
potentially, yes,
right.
And then potentially because it's still up in the air, how it's all sort of shaking out.
But it's not looking good.
That's for sure, right?
It's not looking good based on the last year of trends.
Um, and on the other side, we've got this pressure coming in from the premiums on the PDP that is actually hitting the households directly.
So they're going to be motivated and incentivized once they get those updates on what their premiums are, um, to move in the direction of Medicare advantage.
And some markets, there's going to be less options there because we've had a rash of people exiting markets where they didn't have, um, significant share from a Medicare advantage perspective.
So that's actually going to be a less competitive market with increased premiums, um, and probably increased premiums for the same or lower benefits.
So, so on the whole, um, it's going to be the, the, the American citizen that's going to end up losing, right?
I mean, the, the, the, the, the payers will adjust their models.
They will adjust their models.
They will adjust their incentives or they will leave markets, right?
They'll just decide to opt out entirely, um, where the margins don't work.
Ultimately, the loser is going to be, um, The 65 and over population in America,
correct?
Um, and that is, you know, it's a fairly politically active population, although I think one of the things we need to watch here in the coming year or so is exactly how, how much political power they still have,
right?
Because that's, that's shifting to the, the millennia.
Go ahead, sorry.
Well, I don't know if I agree that, that the shift to more people using Medicare Advantage is inherently negative.
I think it does make sense to the government is saying we want the payer, the underwriter to be responsible for the, The prescription costs alongside the medical cost and they're incentivizing this standalone prescription plan to not be as attractive to get people to move towards Medicare Advantage.
And then simultaneously, they're trying to push the star ratings to be more, to have more teeth, to have more impact.
Right.
I think that in the long run will benefit consumers, the over 65 crowd.
But it has to be, we have to have enough Medicare Advantage plans that there's coverage, that they exist in your market, wherever your market is.
Is that the right frame?
And I, I think an important part of what you just said, you know, has to do with the, the long run.
Um, because I think that the, the, this is a population, if you're say 75 and you're, you know, On a Medicare Advantage plan, or you had Medicare paired with a PDP plan.
You've been getting some fairly robust coverage at a very attractive price relative to say, if you were 64, for example, okay.
Um, your drug benefit, a lot of it was picked up by the government.
So, and you were incentivized to get great, the best drugs on the market because they were the most expensive and that's what your insurer wanted.
Um, you're, it will get to the what's going to drive some of the benefit design and the premiums of Medicare advantage in a minute.
Uh, but those two are going to be under pressure so that you're going as a, as a Medicare beneficiary.
from an expectation that this benefit that you've been paying into for a long time is going to be, you know, freer, more free than what your, your employer, what you're buying on the ACA exchanges or whatever.
Um, and that's not good.
That, that thesis is going to be stretched, um, and, and that I think is where the problem will exist is, is you're going to have some, some very unhappy people.
And that's why CMS went and said, oh, we'll do this demo over the prescription drug plan because they don't want to deal with the political consequences of that.
But, but the, but the real, the real on the ground issue is that something that was free or almost free is no longer.
It's not anywhere close to free, uh, which we'll get to, uh, on the rest of the Medicare thing if you want to flip the page there, Marcus.
So Medicare population, we knew that, we know this is coming, but we haven't been able to see it until really now, uh, with, or maybe last quarter when United Health Group started issuing some, some warnings.
And that is the.
The population that is 65 to 69, those are people come into Medicare.
They're still playing tennis.
You know, they're, they might even be running marathons.
I don't know.
Um, but they're generally pretty healthy people.
Okay.
Um, even though they're, you know, over 65, uh, that population will still pay premiums into a Medicare Advantage plan.
Um, and, but not need a ton of services.
Well, as you start to get older, and the big, the high cost bands are really 75 to 79 and 80 to 84, it's in that group where you see the most expensive utilization of healthcare services, more frequency and more expensive care.
Well, that population band, those two cohorts are growing.
And they're growing simply because in 1947, 48, 49, uh, you had this huge, you know, birth, you know, that's why they call them the boomers, right?
You had a baby boom.
Um, and that, that group of people turned 65, in, uh, in 2012 and on, uh, and now they're hitting their highest utilization period.
United Health Group says on their call, oh, well, it's higher utilization due to pent up demand.
I don't think it's that simple.
I think what's actually going on here is, yes, pent up demand, sure.
I think that's a big part of it and it's been a big part of our thesis, but I think the other part of it is the population covered in Medicare Advantage plans is getting older and demanding more services.
Uh, they can't stay 65 forever, and I can't stay 39 forever.