Impact of Regulatory Changes on Healthcare Costs and Access

Overview of Recent Regulatory Changes in Healthcare

Recent regulatory changes, particularly the final Medicare Advantage rate notice, are expected to negatively impact benefit levels and costs for seniors. Companies like Humana anticipate industry adjustments to funding regulations, while Cigna's significant business transactions highlight the influence of regulatory approvals on corporate strategies in healthcare.

"Specific to 2025, we expect benefit levels, planned stability and choice for seniors to be negatively impacted by the final MA rate notice, which is not sufficient to address their current medical cost trend environment and regulatory changes." --- (HUM, earning call, 2024/Q1)

"In January 2024, we entered into a definitive agreement to sell the Medicare Advantage, Medicare Stand-Alone Prescription Drug Plans, Medicare and Other Supplemental Benefits and CareAllies businesses within the U.S. Healthcare operating segment to HCSC, subject to applicable regulatory approvals and other customary closing conditions." --- (CI, sec filing, 2024/Q2)

"Importantly, we believe that the industry will adjust to the current funding regulatory over time, continuing to deliver strong top line growth and normalizing at an appropriate margin of at least 3%." --- (HUM, earning call, 2024/Q1)

"In January 2024, we entered into a definitive agreement to sell the Medicare Advantage, Medicare Stand-Alone Prescription Drug Plans, Medicare and Other Supplemental Benefits and CareAllies businesses within the U.S. Healthcare operating segment to Health Care Service Corporation, subject to applicable regulatory approvals and other customary closing conditions." --- (CI, sec filing, 2024/Q1)

"On unit cost and non inpatient, we are more dependent on claims. And so typically, in the first quarter, have limited visibility and given the change healthcare disruption even more so this quarter." --- (HUM, earning call, 2024/Q1)

Impact on Providers' Operational Costs and Responses

Regulatory changes are increasing operational costs for healthcare providers due to fiscal pressures and inflation uncertainties. Providers like HCA and Tenet Healthcare are focusing on operational efficiencies and leveraging fixed costs to manage these challenges, while revenue growth from Medicare and Medicaid is also influencing cost structures.

"In addition, the uncertainty and fiscal pressures placed upon the federal government as a result of, among other things, impacts on state revenue and expenses resulting from the COVID-19 pandemic, economic recovery stimulus packages, responses to natural disasters, and the federal and state budget deficits in general may affect the availability of government funds to provide additional relief in the future." --- (UHS, sec filing, 2024/Q2)

"And so we're looking at the business sort of over a longer run. And with the exception of proceeds, which we believe will moderate over time; we will continue to see operating leverage in most scenarios when we have incremental volume because we have fixed cost in our labor platform." --- (HCA, earning call, 2024/Q1)

"It's better supply costs, higher throughput, a detailed understanding of the operations from an efficiency staffing standpoint. Frankly, it's solid compliance and regulatory. So the centers" --- (THC, conference, 2024/05/14)

"And then with the growth in net revenue, the top line growth, I think had some dilutive impact on that calculation as a percent of net revenue, bringing in your Medicare – Medicaid supplemental program revenue as well as the inpatient and growth in kind of medical cases, which can have a lower supply cost as a percent of net revenue." --- (CYH, earning call, 2024/Q1)

"The extent of any future impacts from inflation on our business and our results of operations will be dependent upon how long the elevated inflation levels persist and the extent to which the rate of inflation further increases, if at all, neither of which we are able to predict." --- (UHS, sec filing, 2024/Q1)

Effects on Insurance Costs and Premiums

Regulatory changes are driving up insurance costs and premiums, as evidenced by higher operating expenses and the need for premium deficiency reserves in Medicare Advantage. Companies like The Hartford and Centene are adjusting pricing strategies to ensure premiums cover costs while addressing ongoing financial pressures.

"Insurance operating costs and other expenses were higher for both the three and six month periods, primarily due to the effect of higher earned premium, including higher staffing costs and commissions, as well as higher incentive compensation, partially offset by an increase in the allowance for credit losses on premiums receivable in the 2023 period." --- (HIG, sec filing, 2024/Q2)

"As a result of this expectation, we recorded a premium deficiency reserve of $250 million in the fourth quarter of 2023, which increased to $300 million in the first quarter of 2024 to reflect the seasonality of earnings, in connection with the 2024 Medicare Advantage business." --- (CNC, sec filing, 2024/Q1)

"The Company seeks to price its insurance policies such that insurance premiums and future net investment income earned on premiums received will cover underwriting expenses and the ultimate cost of paying claims reported on the policies and provide for a profit margin." --- (HIG, sec filing, 2024/Q1)

"As a result of this expectation, we recorded a premium deficiency reserve of $250 million in the fourth quarter of 2023, which increased to $300 million in the first quarter of 2024 and to $335 million in the second quarter of 2024 to reflect the seasonality of earnings, in connection with the 2024 Medicare Advantage business." --- (CNC, sec filing, 2024/Q2)

"The expense ratio in the six month period decreased primarily due to the impact of higher earned premium driven by earned pricing increases, partially offset by an increase in direct marketing costs." --- (HIG, sec filing, 2024/Q2)

Implications for Patient Access to Services

Regulatory changes are enhancing patient access to healthcare services through technological advancements and improved care coordination. Companies like Medtronic and CVS are excited about new service lines and connecting patients to diverse health services, while Walgreens emphasizes pharmacist support in navigating care.

"And we're excited to ramp this technology up and make it available. The -- I will say that the level of excitement we're getting from physicians and from hospital systems about this new service line they can offer, as well as patients and the early outcomes for patients that have been treated on the sort of case-by-case basis have been really phenomenal." --- (MDT, earning call, 2025/Q1)

"In our healthcare delivery business, we are driving meaningful progress connecting patients to health services across all of our channels: primary and acute care, health services in the home, and clinical programs." --- (CVS, earning call, 2024/Q2)

"When a patient must confront a life-changing, serious health challenge and begins therapy for a chronic or complex condition, our pharmacists are right there to guide and care for them throughout their healthcare journey —from helping them order and take their medication to identifying financial assistance opportunities and working with their doctor and insurance plan to make sure they’re receiving the most coordinated care." --- (WBA, press release, 2024/04/24)

"I think it’s going to be important to generate data, even if it’s not to communicate to payors to get reimbursement, but even if it’s to communicate to physicians, the primary care and the direct consumers, that there’s a value here of doing that.I think the key thing here is personalization and how do you personalize information and the data and the coaching, so the strategy here is, yes, you’re doing to have to use TV to be able to communicate, but I don’t think it’s--I don’t think given our experience here that you could just go on TV and blast." --- (ABT, earning call, 2024/Q2)

"Based on clinical setting and patient need, hospitals may need and benefit from having access to both LVP and SYR pumps." --- (BAX, press release, 2024/04/01)

Future Outlook on Healthcare Policy and Regulations

The future outlook on healthcare policy and regulations suggests a mix of hope and proactive adaptation. Companies like Merck and AbbVie emphasize the need for reassessment of harmful provisions, while Johnson & Johnson highlights the importance of compliance and patient access amidst regulatory changes, indicating a focus on improving patient care and competition.

"In the segment of health care, we have stronger regulations by the government and also from the federal states. In the not so clearly regulated areas, we can always change make changes quicker and dependent on the market situation." --- (MRK, event transcript, 2024/04/26)

"hopeful that if it’s a new administration or the current administration, that they’ll reassess those provisions that ultimately are harmful for long-term patient care in the U.S." --- (ABBV, earning call, 2024/Q2)

"We believe that any effort on behalf of any government to really build integrity and compliance into the health system is a good thing for more fair competition and aligns with our credo and our commitment to compliance across all of the markets in which we participate in." --- (JNJ, earning call, 2024/Q2)

"So, we are hopeful that if it’s a new administration or the current administration, that they’ll reassess those provisions that ultimately are harmful for long-term patient care in the U.S. I mean, it clearly" --- (ABBV, earning call, 2024/Q2)

"And so that is really across the payer landscape and then also what we're doing with patient services and ensuring that patients who the physicians want to prescribe it for have the ability to get access and to navigate through the whole insurance maze and everything and come out on the other end very successfully on the product. So we feel real good getting ready for and moving into this launch." --- (JNJ, conference, 2024/06/12)

Long-term Effects on Healthcare Affordability

Long-term regulatory changes are fostering greater awareness and opportunities for affordability in healthcare. Companies like UnitedHealth and Centene are focusing on managing chronic diseases and improving access for the uninsured, while Cigna emphasizes innovation to reduce medication costs, all contributing to enhanced healthcare affordability.

"Because it identifies affordability opportunities incredibly quickly. It also identifies chronic disease that needs to be managed and it gets them connected to primary care quickly." --- (UNH, earning call, 2024/Q1)

"that that's an opportunity for them. We're seeing a lot more awareness, the feeling of affordability, so that's brought in non insured." --- (CNC, conference, 2024/05/31)

"The thinking was, given the market competitive environment, given some of the restrictions on tweaking benefits, that we should think of it in terms of 100 to 150 basis points of margin recovery, MLR and then margin maybe each year for the next few years. I wonder if you have any updated thoughts on how fast we can see that margin recovery." --- (HUM, earning call, 2024/Q2)

"From our point of view, that's too many. We accept the responsibility to accelerate innovation to make medications more affordable, while continuing to improve health outcomes in finding solutions for every person we serve. Make no doubt our team will continue to lean into the challenge for the benefit of our patients, clients and the health care ecosystem and we are proud of the work that our team does every day and the role we play and the results we're able to achieve. Now let me pause and summarize before transitioning to Brian." --- (CI, earning call, 2024/Q2)

"directed at those behavioral health members to ensure access and affordability and holistic care to individuals with mental health conditions." --- (UNH, earning call, 2024/Q2)

Stakeholder Perspectives on Regulatory Changes

Stakeholders in the healthcare sector express significant concern over regulatory changes, particularly regarding Medicare and Part D programs. Companies like CVS and Humana anticipate disruptions and premium increases, while UnitedHealth Group emphasizes proactive measures to monitor these changes, reflecting a landscape of uncertainty and varied internal perspectives.

"Key Regulatory Trends and Uncertainties • The Company is exposed to funding and regulation of, and changes in government policy with respect to and/or funding or regulation of, the various Medicare programs in which the Company participates, including changes in the amounts payable to us under those programs and/or new reforms or surcharges on existing programs, including changes to applicable risk adjustment mechanisms." --- (CVS, sec filing, 2024/Q1)

"I would say a number of weeks ago in the early stages, I think there was some concern that we may be taking more benefit changes than others and created some anxiety within the team and sort of different perspectives on what might happen." --- (HUM, conference, 2024/05/14)

"And then the other thing, I would say to you is, as you would expect, given that shift we saw last year in the intervening year, we've put in a lot of sensing mechanisms across our organization, both in UAC and Optum, to look for early warning signals of changes, quite a low granularity in terms of trying to figure out how this pattern plays out." --- (UNH, earning call, 2024/Q1)

"We do think there's going to be disruption. We do think it's going to necessitate premium increases, and that's why there's just some uncertainty about where the ultimate industry goes from an MA perspective in terms of membership." --- (CVS, earning call, 2024/Q1)

"The Part D changes you mentioned is going to be disruptive. How are you thinking about what that means from a supplemental benefit perspective? If Part D becomes bigger, then" --- (HUM, conference, 2024/05/14)