Weekly briefing
Earnings season
Small business segments drive big impacts for ACA and Medicaid payers
Elevance and Molina reported earnings this week, and both payers shared struggles with their Medicaid and the Affordable Care Act marketplace businesses. Here’s a look at where their stocks are trading over a 5 day window:
Elevance down a modest 45 basis points:
Meanwhile, Molina is down 17.40% over the same period:
The difference is that Elevance has a diversified business which includes modest Medicaid membership (8.6m) and a small marketplace business (1.6m) making up a combined 22% of their insurance business. They also have Carelon, a healthcare services business, to help balance out their exposure to what has been a no good, very bad year for insurers.
On the other hand, Molina is mostly a Medicaid business (75% of their revenue) with sidelines in Medicare (15% of their revenue) and the Marketplace that they describe as “small, silver, and stable” (10% of their revenue).
Interestingly, both companies struggled with relatively small pieces of their business: Elevance’s struggles were concentrated in their Medicaid business which had “modestly negative” operating margins that are expected to decline by 125 basis points in 2026. Molina saw “unprecedented utilization trends in the ACA marketplace” which drove 50% of their downward revision of earnings per share.
Both businesses cited elevated medical spending, mostly on utilization, with behavioral health, LTSS, pharmacy, and in-patient care on the Medicaid side of the house.
Analysis
A few interesting points:
Elevance said their ACA trend was modestly favorable, Molina’s was catastrophically unfavorable. Interested in hearing more about what drove the divergence.
I’ll be paying attention to other payers’ calls for what’s going on with Medicaid margins because Elevance saw significant deterioration to -0.5%. Molina faced headwinds in Medicaid this quarter, but fared better than Elevance, with adjusted pre-tax margins of (positive) 2.6%.
HTN Member Connor Allen noted (link to the discussion for HTN community members) an interesting back and forth during the Elevance Q&A with an analyst asking whether the OBBBA would trigger another period of acuity shifts similar to the post-pandemic redeterminations. Elevance said no, they’d be ready with tighter medical cost management, the phased implementation of the OBBBA, and faster rate increases from states. Connor is skeptical, and I tend to agree: the OBBBA redeterminations seem like they will drive similar acuity shifts as the post-pandemic ones.
Overall, it’s a rough year for the ACA and Medicaid businesses with a lot of uncertainty on the policy side that has the potential to cause more pain for these plans.
Medicaid
Cedar launches Cedar Cover, a “digital safety net”
In addition to earnings season, HLTH was this week which meant a slew of announcements from health tech companies. Healthcare finance startup Cedar previewed their new product Cedar Cover:
They’re partnering with Fortuna Health1 for Medicaid enrollment and renewal workflows and TailorMed for the medication assistance.
Analysis
It’s a sign of what is top of mind for provider and health system CFOs that their vendors are touting capabilities to try and mitigate the impacts of the One Big Beautiful Bill Act.
While a lot of the conversation about the ACA is focused on the individual market, Medicaid expansion did a lot of heavy lifting and there’s a reason why the AHA lobbied against the Medicaid changes in the OBBBA, which is that after Medicaid expansion, hospital bad debt and charity care decreased pretty significantly.
Consider this chart from Colorado’s Department of Health Care Policy & Financing:
I imagine the pitch to a hospital is pretty straightforward for Cedar and Fortuna which is something along the lines of pulling up this chart but for that specific health system and saying “we can help you mitigate that.”
There’s a bit of a tension though, because the changes to Medicaid were intended to save money for the federal government, and if Cedar is successful, those taxpayer savings aren’t going to materialize.
Cedar isn’t the only team that has noticed the regulatory opportunity here. Equifax, who also reported earnings this week sees lots of upside and 50% EBITDA margins for their verification business that they say has tailwinds from the OBBBA.
Provider Directories
Provider directory vision board
Earlier this month, the Health and Human Services Office of the Inspector General published a report saying that
And InsideHealthPolicy reporter Jalen Brown noted that:
Hours before CMS’ new provider directory for Medicare Advantage (MA) plans began catching heat for being riddled with errors and contradictions late Wednesday (Oct. 15), CMS Administrator Mehmet Oz acknowledged the imperfections in the directory landscape and said building a better one was on the agency’s “vision board.” He stressed the directory was licensed from a third-party vendor, and said CMS is evaluating similar tools from other companies as well as in-house options.
Moving quickly, CMS awarded Palantir, CAQH, Availity, and GainWell grants for proof of concept provider directory solutions.
Analysis
A useful thing for insurance buyers is to have a list of which providers are in-network when they’re shopping. Famously, people tend to like their doctors, and if you tell them that they can keep their doctors2 and that isn’t true, people will be angry and still talk about it more than a decade later. So it’s a load-bearing part of having a shoppable insurance market.
The No Surprises Act has some rules about keeping provider directories up to date, and there are behavioral health parity laws supposed to prevent what the OIG found going on.
I think it’s an interesting problem because it’s no doubt highly technical in nature— there are lots of providers, lots of churn in networks as providers leave or retire, and lots of plan variation even internally at a specific payer. But the directory is in many ways the easier of the problems to solve.
There are pretty striking shortages of behavioral health providers and every payer has cited rising behavioral health utilization as part of their hard to manage medical trend. Getting the database entries right is important, but solving the very real supply/demand mismatch and cost problems in behavioral health is going to require more than Palantir working their magic on those disparate data sources.
The Hickpuff Review
Kevin interviewed Dr. Archelle Georgiou on UHC’s decision in 1999 to remove prior auths and her assessment of the new CMMI model WISeR
Value-based care in Medicaid is having a moment, and I caught up with Bluebird Kids COO Rachel Wilson to talk about the challenges and opportunities of taking risk with a pediatric population
I also spoke with Olivia from Acute Condition and the American Economic Liberties Project about provider consolidation and its malcontents
The ACA window shopping period is open and there’s some sticker shock, although to be fair, everyone’s premiums are going up next year with KFF reporting that average premiums for employer-sponsored insurance for a family of 4 are hitting ~$27k next year
Also on the ACA front, another ominous poll for Republicans
The Senate Committee on Aging hosted a hearing— Modernizing Health Care: How Shoppable Services Improve Outcomes and Lower Costs— with Mark Cuban, G. Keith Smith, MD, of the Surgery Center for Oklahoma, Don Moulds from CalPERS, and Jeanne Lambrew from the Century Foundation
Brown’s Center for Advancing Health Policy Through Research (CAHPR) published an interesting brief on the financial performance of critical access and rural hospitals showing variation based on affiliation. It’s hard to be independent!
Long form: bending the cost curve makes everyone mad
As the debate for what to do about the Affordable Care Act tax subsidies continues on Capitol Hill, with “some GOP hard-liners…again embracing repeal-and-replace rhetoric”, I thought it would be interesting to revisit an open question in health care policy: whether the Affordable Care Act “bent the cost curve.”
One reason why it’s an open question is that it’s hard to model counterfactual— what’s happened, happened. But one piece of evidence you could use to evaluate the claim is looking at national health expenditures (NHE) before and after. Contemporaneous discussions before the passage of the ACA were concerned that national health expenditures would continue to grow at a rate of 6.6% or higher. This chart is from a Commonwealth Fund paper modeled different scenarios:
In their estimation, the best case scenario was that the ACA might trim the annual growth rate of national health expenditures by 0.6% meaning that in 2019, NHE would be ~$4.5 trillion.
In fact, NHE for 2019 was $3.8 trillion. By my math, the compounded annual growth rate between 2009 and 2023 (the most recent NHE report) is, rounding up, 5%— a whole hundred basis points better than the Commonwealth Fund thought.
If we accept the premise that the ACA did something to bend the cost curve, your next question might be how it accomplished this. We know it wasn’t the Center for Medicare and Medicaid Innovation which, with a few exceptions and on net, spent more money than it saved:
So what happened? Two ACA-related drivers of the reduction in growth were:
Lower Medicare prices which is to say, lower payments to doctors and other care providers
It’s sort of obvious, right? If you pay doctors less, you’re going to save money. And if you make it more expensive for people to access care through higher deductibles and say they can only go to certain doctors, people are going to be more thoughtful about their spending and sites of care.
But we don’t see a lot of politicians rushing to build on the success of the ACA cost savings measures because these things are horrifically unpopular. Doctors and insurance members hate this stuff. It caused a political shellacking for the Democrats. As I was listening to the Senate Committee on Aging’s hearing on shoppable services yesterday, members of both parties and their invited guests were complaining about high deductibles.
The lesson seems to me that bending the cost curve is going to make everyone hate you even if you’re pretty successful. The political incentives of this lesson seem bad if you’re ever hoping to spend less on healthcare. Compared to the 6.6% growth estimate from the Commonwealth Fund, the ACA saved ~$1.2 trillion dollars between 2009 and 2023. But it’s impossible to imagine anyone bragging about it while running for office.
1 You can read our interview with Fortuna cofounder Nikita Singareddy here and our coverage report of their business here
2 An insane claim to make given how network contracting works