Rising Jobless Claims: Implications for the Healthcare Sector

Broader Economic Impact on Healthcare Sector

Rising jobless claims are driving significant costs and expenses in care management and product access (CVS). There's a surge in demand for mental health services (Cigna), and rural healthcare demand is impacting urban markets (HCA). Higher medical costs are increasing benefit ratios (Humana), and Medicare utilization is reducing operating income (CVS).

"I mean the broader care management wrapper is on this. But this category alone is driving obviously significant costs for our clients, and it's also driving significant expense within our organization, just to support what is now one of our highest drivers of call volume around people trying to find access to the product and making sure that we get consistent supply in the market." --- (CVS, earning call, 2024/Q1)

"Today, that's a relatively small part of the company, but there's a tremendous amount of demand for mental health right now both from our Cigna Healthcare customers, but also our external and affiliated clients that Evernorth serves. So all those things taken together lead to the 8% to 12% expectation." --- (CI, earning call, 2024/Q1)

"Then underneath that, we're exploring whether the market demand for those services was something we call end market demand or it came from the rural market into a major market because the rural market is another target market for us because of the deficits in capacity and talent in rural America, healthcare travels to the cities And in our communities, 18% of all demand for healthcare comes from the rural community into HCA markets." --- (HCA, conference, 2024/05/30)

"The consolidated benefit ratio increased 340 basis points from 85.5% for the 2023 quarter to 88.9% for the 2024 quarter primarily due to higher Medicare Advantage medical cost trends in the 2024 quarter compared to the 2023 quarter partially offset by the impact of pricing and benefit design of our 2024 Medicare Advantage products, which included a reduction in benefits in response to the net impact of the final rate notice and the initial emergence of increased medical cost trends." --- (HUM, sec filing, 2024/Q1)

"Further, in a Quarterly Report filed on Form 10-Q with the SEC that same day, CVS stated that operating income decreased $1.2 billion, or 34.1% "in in the three months ended March 31, 2024, primarily due to increased Medicare utilization, the unfavorable impact of the previously disclosed decline in the Company's 2024 Medicare Advantage star ratings and a year-over-year unfavorable impact from development of prior-years' health care cost estimates in the Health Care Benefits segment."" --- (CVS, press release, 2024/07/17)

Impact on Healthcare Insurance Coverage

Rising jobless claims are likely to increase reliance on Medicaid and marketplace insurance, as highlighted by Coordinated Care's extensive coverage. Higher utilization of healthcare services and policy changes, such as those tied to the Public Health Emergency, will pressure insurers like CVS and Molina. The individual exchange market, emphasized by Cigna, will become crucial for those losing employer-sponsored plans.

"To learn more, please visit http://www.strongystrongc.com. About Coordinated CareCoordinated Care provides free and low-cost health insurance coverage to more than 300,000 Medicaid, foster care, Medicare and marketplace members across Washington, with more than 30,000 providers in-network." --- (CNC, press release, 2024/06/12)

"The effect on the Insurance segment benefit ratio is opposite of the Medicare stand-alone PDP impact, with the benefit ratio increasing as fully-insured members progress through their annual deductible and maximum out-of-pocket expenses." --- (HUM, sec filing, 2024/Q1)

"The Company stated that higher utilization of healthcare services, meaning more insurance dollars spent, weighed on its results in addition to Medicare reimbursement rate cuts that will continue to pressure CVS for the remainder of the year." --- (CVS, press release, 2024/05/11)

"There are several healthcare programs tied to the PHE which are impacted by this change in policy." --- (MOH, sec filing, 2024/Q1)

"The individual exchange market in aggregate, we see as an important part of the U. S. Health care system for those individuals who don't have access to an employer sponsored plan or a government sponsored coverage from Medicare, Medicaid, TRICARE, etcetera." --- (CI, conference, 2024/06/11)

Changes in Healthcare Service Demand

Healthcare service demand shows seasonal variations, with higher demand in winter and lower in summer. Acute hospitals report a 4.5% year-over-year increase in admissions. Long-term inpatient demand is expected to grow by 1.5% to 2%, with both inpatient and outpatient services experiencing growth.

"Historically, the strongest demand for hospital services generally occurs during the winter months, and the weakest demand generally occurs during the summer months." --- (CYH, sec filing, 2024/Q1)

"Our Acute Hospitals continue to experience strong demand for their services in the first quarter with adjusted admissions increasing 4.5% year-over-year on a same-facility basis." --- (UHS, earning call, 2024/Q1)

"We think health care demand in the long run is going to be 1.5% to 2% on the inpatient side, at least in the markets that we serve." --- (HCA, conference, 2024/06/05)

"In the interim, there will be no disruption to patient care or any other immediate changes to the healthcare services offered by these hospitals." --- (CYH, press release, 2024/06/19)

"We're diversified from a service standpoint. And it's our belief that demand on the inpatient side as well as demand on the outpatient side is growing." --- (HCA, conference, 2024/05/14)

Financial Performance of Healthcare Companies

Despite external pressures, UnitedHealth Group's Optum Health and MA business showed strong performance. CVS Health's Health Services segment faced challenges impacting adjusted operating income, and a significant negative financial revision led to a 17.7% drop in CVS shares. Cigna uses specific financial measures to assess performance, while Humana faced allegations of misleading financial statements due to increased medical costs.

"first quarter has played out in that respect. If you look at the performance of Optum Health and our MA business within UnitedHealthcare, both very strong performance during this quarter despite the pressure that's been incurred on them from the rate notice last year and I think that bodes super well for the rest of this year and the strategy that we've laid out for the next three. Thanks, Lisa. Next question." --- (UNH, earning call, 2024/Q1)

"• As you review the Health Services segment’s performance in this area, you should consider the following important information about the business: • The Company’s efforts to (i) retain existing clients, (ii) obtain new business and (iii) maintain or improve the rebates, fees and/or discounts the Company receives from manufacturers, wholesalers and retail pharmacies continue to have an impact on adjusted operating income." --- (CVS, sec filing, 2024/Q1)

"The Company uses "pre-tax adjusted income (loss) from operations" and "adjusted revenues" as its principal financial measures of segment operating performance because management believes these metrics best reflect the underlying results of business operations and permit analysis of trends in underlying revenue, expenses and profitability." --- (CI, sec filing, 2024/Q1)

"See www.faruqilaw.com. As detailed below, the complaint alleges that the Company and its executives violated federal securities laws by making false and/or misleading statements and/or failing to disclose that: Defendants downplayed pressures on the Company's adjusted EPS resulting from increased medical costs associated with pent-up demand for healthcare procedures (especially as COVID concerns abated) which, contrary to the Company's assurances, resulted in increased utilization rates and costs." --- (HUM, press release, 2024/06/21)

"Mizuho healthcare expert Jared Holz wrote in a note to clients, 'Did not even believe the CVS numbers when they were released and anticipate a great deal of pressure on shares given the magnitude of this negative financial revision.' Based on this news, shares of CVS fell by more than 17.7% on May 1, 2024." --- (CVS, press release, 2024/05/01)

Strategic Adaptations by Healthcare Companies

Healthcare companies are strategically adapting to rising jobless claims by forming partnerships to address mental health (HCA Healthcare), enhancing patient interactions to reduce costs and improve quality (CVS Health), and leveraging diverse capabilities to remain adaptable (UnitedHealth Group).

"HCA Healthcare is committed to breaking down barriers and stigma associated with mental health by teaming up with strategic partners." --- (HCA, Twitter post, 2024/05/30)

"And as we know, consumers and patients who interact with the healthcare system will deliver lower costs, will have improved quality and eventually continue to drive growth for our company because of the better outcomes and because of the better retention that we have with them." --- (CVS, conference, 2024/05/29)

"UnitedHealth Group is a nimble and adaptable enterprise, well suited to meet the challenges that come our way and the opportunities we pursue with the many and diverse capabilities available to us." --- (UNH, earning call, 2024/Q2)

Government Policy Responses

Government policy responses to rising jobless claims include changes in Medicare funding and regulation, as well as supplemental payments to protect Medicaid providers. These measures aim to stabilize the healthcare sector amidst economic challenges.

"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 think states and the federal governments view supplemental payments as a way to protect providers for Medicaid." --- (HCA, conference, 2024/05/14)

Impact on Healthcare Employment

HCA Healthcare has significantly bolstered healthcare employment, recruiting over 116,500 colleagues in 2023, including 37,500 bedside nurses. Despite a projected shortage of 463,000 healthcare workers by the end of 2024, HCA's targeted recruitment in specialties like cardiology and improved caregiver supply indicate a proactive approach to addressing employment needs.

""We are proud of the impact our colleagues are making through more than 43 million annual patient encounters, as well as the best practices and standards of care we are developing that help improve care with and beyond our network of hospitals." In 2023, HCA Healthcare recruited more than 116,500 colleagues, including 37,500 bedside nurses." --- (HCA, press release, 2024/04/22)

""It is important for us to work with the Consortium of Florida Education Foundations, which is deeply involved in communities across Florida, to expose students to opportunities available to create a fulfilling career in healthcare." The Florida Chamber Foundation's Workforce Needs Study estimates there to be a shortage of approximately 463,000 healthcare workers by the end of 2024." --- (HCA, press release, 2024/06/04)

"We have improved that significantly over the last 9 months. And our ability to receive patients because of sufficient supply of nurses and other caregivers has increased." --- (HCA, conference, 2024/05/30)

"We've sort of approached the market as being a bias towards independence, but there are certainly pockets of specialties like cardiology are more procedural and heavily weighted towards a hospital where they've desired to be employed and so we've employed more in that space as well." --- (HCA, conference, 2024/05/28)