The Grand Roundup will be live today, Monday, May 4th at 12p ET/9a PT
It’s Monday, May 4th, and Kevin and Martin plan to use certain financial measures on today’s The Grand Roundup, including adjusted EBTIDA, which are not determined in accordance with accounting principles generally accepted in the United States, otherwise known as GAAP.
Later today, we’ll be recapping earnings calls from Teladoc, Alignment Health, Humana, Cigna, Centene, and Tenet; obliging Ed Park’s request to print his request that the government pay MA plans less; and speculating about Nebraska’s early implementation of community engagement requirements for its Medicaid Expansion population.
We’ll also be welcoming the following guests:
12:15pm ET: Eliana Berger, CEO of Joyful Health, on their $17M Series A and opportunities in medical practice finance beyond rev cycle.
12:35pm ET: Bryan Roberts, Partner at Venrock, on Eli Lilly’s acquisition of Kelonia Therapeutics.
1:05pm ET: Natalie Davis, CEO of United States of Care, on how healthcare is shaping the 2026 midterms election
1:30pm ET: Brian Miller, Medical Doctor and Hoover Institution visiting fellow, on the turnaround of the North Carolina State Health Plan and his current research on health care policy and financing.
Puts & Takes
The basic trade for a Medicare beneficiary choosing MA over Original Medicare is supposed to be something along the lines of exchanging an expansive network and little to no utilization management for no to low premiums and supplemental benefits like hearing, vision, and dental. Less choice, more friction, but lower fixed costs and some extra benefits.
MA plans accomplish this at approximately1 the same per-patient-per-year cost as Original Medicare through narrower networks and utilization management. Sometimes, though, MA plans try to adjust the dials on network narrowness and utilization management to make the MA plans look and feel a bit more like the Original Medicare plans. The Preferred Provider Organization or PPO plan design is one way plans spin these dials, and there are pretty limited proof points on pulling this off profitably. It’s a great way to grow membership; beneficiaries really like it, but it’s a hard way to make money.
Why is it so hard to make money in MA PPOs? There are some good reasons! Some of those reasons are just basic insurance math and competitive-ish markets. For one, the health insurance business is fundamentally about underwriting risk, and famously, it’s tough to make predictions, especially about the future.
Another thing that makes this dynamic interesting is executive compensation in the US. Due in part to quirks of the tax code, but mostly to properly align incentives, executive compensation for, say, a health insurance executive mostly comes in the form of stock options, which get in the money when executives take risks to grow the business and those risks pay off. The incentive structure is biased towards some amount of growth and risk-taking.
There are also the competitive dynamics, which add an interesting layer of game theory to the whole process. When you’re preparing your bid, you might feel tempted to be cautious with premium setting and stingy on benefit design. But if your competitors are feeling like they’ve got their arms around risk and are less cautious and/or less stingy, you’re going to lose significant market share.
This is, of course, by design. If there weren’t a competitive market, members would pay too much and get too little from their plan. But too much competition, or too little caution, and it can be bad. Who is it bad for? Oh, it depends. Sometimes it’s bad for members, doctors, or other insurance plans in the market. Other times, it’s less bad for these groups and mostly bad for the shareholders of the insurance company. They have a residual claim on the cash flows of the insurance company, and if there isn’t any residual cash after paying out medical expenses, that is hard cheese for the shareholders. State insurance regulators try to make sure the members and doctors are kept safe; they care less about the shareholders, though.
But that’s basically true across all health plans, so why are PPOs such a siren call for MA plans? I’d argue it’s the combination of the economics of MA being designed around utilization management, and the dynamics MA bidding which are roughly Prisioner’s Dillema shaped. On their most recent earnings call, Humana CEO Jim Rechtin had this to say about PPOs:
There's nothing inherently -- there's nothing inherent in the product that doesn't work. it is all about how do you price the product and how do you structure the product to target the right segments in the right way? And if you kind of look back in time, because I know there's all this talk about, hey, PPO is bad, PPO is not good. Look, if you look back in time, we had a number of years where the industry priced PPO aggressively and they were -- we, the industry, were using PPO as a growth engine, pricing aggressively and you saw disproportionate growth in PPO. And you saw that happen at the expense of margin in that product.
We spent 2 years repricing our PPO product. We spent been 2 years repricing our PPO product, and most of the industry either did it with us or followed suit shortly thereafter. And the result that you're seeing is that growth is rebalancing back to being more equal between HMO and PPO across the industry, we believe. And again, that is a result of the industry taking a different approach to how they price that product. And when we do that, that product can perform financially, and we see that product performing financially. Now look, every year, we're going to step back, and we're going to look at our whole portfolio.
And we're going to say, "Hey, are there pieces, are there geographies, are there pieces that we need to reconsider based on new information?" But the practical reality is all product, if priced appropriately, is good product.
This is a pretty good summary of the problem. If priced correctly, any plan design should work, but it’s hard to price PPOs correctly if your competitors are pricing for growth at the expense of margin. In a competitive insurance market, you don’t just need to get the numbers right for your book; you need your peers to responsibly price the products as well. If they don’t and you do, and it’s a good year, medical spend-wise, they’ll take your members and make lots of money, and your shareholders will be mad at you. If you follow suit the following year and it’s a bad year, medical spend-wise, your shareholders will be mad at you for losing money. Tough job! I guess that’s why they get paid the big bucks.
ICYMI The Grand Roundup: 04/27/2026
1 I know! Don’t yell at me about which actually costs more and to whom. Largely unresolved issue.