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Kevin’s reflection: the ACA, catastrophic coverage, and Soliris
As Open Enrollment kicks off this weekend and the political uncertainty around enhanced subsidies is at a fever pitch, there are a lot of very understandable questions about whether health insurance is worth the cost, as highlighted in this Substack post by Tom Church.
This isn’t a new line of questioning. Professor Scott Galloway has publicly discussed why he doesn’t have health insurance and chooses to self-insure because of the math. If you’re generally healthy and have the means to pay for catastrophic events, it seems logical not to buy health insurance. And if you’re healthy but don’t have the means to pay for catastrophic events, wanting cheap catastrophic coverage seems equally logical to me. Just please beware of healthcare sharing ministries.
That said, one of the things that I think is hard about this conversation about insurance is how counterintuitive it is just how much healthcare can cost if you’re not healthy. As an example, I know someone on Soliris, one of the highest-cost medications in the US. Soliris is a life-changing medication that requires regular infusions indefinitely. It also happens to cost roughly $678,000 a year in the US (if you went over to the UK, they’ve negotiated that down to $571k a year).
So if you now go back to Church’s financials, you may notice that the scenarios given are skewed in that they don't come anywhere close to the math for someone living with $600k+ in predictable medical costs annually for as long as they live. This underscores the challenge that I think so many conversations like this one have today. The cost of healthcare for the average person has very little to do with why healthcare is so expensive in this country. The cost of healthcare for the top 1% of the population in terms of healthcare spending has everything to do with why healthcare is so costly.
In my opinion, this is the challenge inherent in insurance and risk pools — it is always going to be a losing financial proposition for the population that doesn’t have an “event”, in this case, the healthy population. Tom Church’s math confirms that. And when healthcare costs as much as it does, for so little perceived coverage in return, I can’t blame healthy people for wanting to opt out.
At the same time, when we frame the conversation about healthcare costs as a question of whether it is financially worth it for healthy people, I think we should acknowledge the trade-offs that are inevitably glossed over in terms of what coverage we are providing for the sick. It’s not worth it for healthy people who don’t have catastrophic events. That’s actually the point of insurance, right? In my opinion, the much more complex question revolves around: how much are we collectively willing to pay for sicker people?
A thing that worries me: as frustrating as people think this conversation is about costs today, the coming wave of pharmaceutical innovation is going to put so much more pressure on healthcare costs in this country. When the median list price of new drugs approved by the FDA is $390,000 (per Cigna), who exactly is going to foot the bill to allow people to access these new medications? The iron triangle rears its head again here — either healthcare costs are going up (cost), we’re rationing care (access), or we’re slowing down innovation (quality). One of those things has to give.
It goes without saying that these are challenging trade-offs, but not addressing them head-on doesn’t avoid them; it largely just means we end up ceding those decisions to private enterprises we force to make them on our behalf. For instance, Martin mentioned in his policy newsletter this week that DaVita faces $120 million in losses over the next three years due to coverage changes with the expiration of ACA subsidies. I’d expect their shareholders to expect DaVita to make changes to its offering that mitigate this headwind. And then we all get to complain when for-profit enterprises act rationally to maximize profits, as if that is not their purpose.
Ok, on that rather uplifting note, who wants to talk about earnings calls? I do! First, a related question for y’all on this topic, then we’ll move on to those.
PS - Just to note, as always, you’re reading my personal opinion on things that happened this week, and you are free to disagree. Me sharing my opinion is intended to start a dialogue, not convince you I’m right. Thanks to Lisa Bari for surfacing the Tom Church post in HTN Slack this weekend and starting the convo — join in on the convo there!
Question of the Week
Given the discussion above, I’m curious about the topic of super spenders and how much health care costs at the absolute highest end of the population. If you somehow found the person in the US who has the single highest healthcare spending in 2025, what do you think that number would be? Pick from an answer below — will share results next week.
What do you think the medical costs will be in 2025 for the single most expensive person in the US?
PAYER EARNINGS
Q3 earnings week: PBM questions overshadow stabilizing insurance industry performance
Most of the big payers reported earnings this week, including CVS, Centene, Cigna, and UHC, as well as Medicare Advantage standout Alignment Healthcare. As you can see in the stock performance chart below, of those five, only Centene ended the week ahead, with Cigna standing out as a notable underperformer, driven by issues in the PBM market.
Source: Google Finance
Here is a rundown of the key takeaways from the payor earnings calls of note this week, in alphabetical order:
Alignment stock drops even on yet another solid quarter
Our full HTN analysis here
Alignment continues to execute solidly in a tumultuous Medicare Advantage environment. So much so that an analyst essentially asked them if they’re sandbagging the forecast, given they’ve now increased EBITDA guidance 4x over the past calendar year. Good problems to have compared to the rest of the industry.
Given that, it’s interesting to see how different the tone of the Alignment earnings call is to the rest of the industry — while other MA plans are trying to project stability and a path to recovery, the tone of Alignment’s earnings Q&A is more — how quickly can you grow this thing without eroding the foundation? Can they do MA? Will they enter new markets in 2027? Alignment noted that AEP is off to a strong start and expects 20% growth while maintaining profitability.
There was some interesting dialogue around Alignment’s relationship with providers, and how in California, it is de-delegating UM from the IPAs it works with, which helps it drive outperformance (i.e., admits per thousand in the low 140s). As part of that, Alignment is shrinking its global cap book from 30% while increasing its shared risk book, where providers aren’t taking on inpatient risk. Outside California, Alignment is actually acting as the IPA itself and also taking a shared-risk approach with providers.
Side note: Martin and I tried a thing this week — recording ourselves talking through the Alignment earnings call. For those of y’all already ready for the post-literate society that is ahead of us, this is for you!
Centene rebounds on solid ACA performance as it beats and raises
My full HTN analysis here
Centene stock was up 11% at one point during the week, rebounding after its stock dropped last week following Molina’s ACA challenges. Centene appears to have avoided the challenges Molina is facing in that business as it performed in line for the quarter, although Centene did note that utilization did tick up in September, and it expects an additional $75 million of pressure in Q4
Centene had some interesting commentary around ACA open enrollment, noting that given the discussion around enhanced subsidies, they wouldn’t be surprised to see a 60-day special enrollment window after open enrollment window closes. Lots of analyst discussion around 2026 enrollment and the overall health of the ACA, and it was interesting to note that Centene was largely silent on ICHRA in the call.
If you’re a Medicaid nerd, there was some really good tangible discussion around specific state contracts — Centene’s outperformance is attributable primarily to a revenue increase they saw from the state of Florida for ABA therapy going back to February 2026. They also termed a New York provider that was billing fraudulently, and the state of New York is now taking action against that provider.
Cigna stock tanks on a ~20% reduction in PBM operating income in 2026
Cigna shared that while the insurance and specialty care businesses are well-positioned for future growth, it needs to “future-proof” the PBM portion of the business. It highlighted several actions to do so, with the biggest being:
Securing three long-term contracts into 2030s — DoD, Prime Therapeutics, and Centene
Changing its rebate model to an upfront discount model, which Cigna Healthcare will adopt 100% for fully insured lives in 2027, and will be the standard offering for CIgna in 2028, with 50% of its book moving to it by year-end 2028
Cigna acknowledged that the three long-term contracts have better terms for the clients and Cigna expects margin pressure over the next few years in PBM as a result of that (and the other factors above). It is still confident in long-term growth, but it will hit 2026 income. Doing the math from the earnings call, it appears that PBM operating income will fall from ~$3.6 billion in 2025 to $3.0 billion in 2026, a 20% decline. (My math: Cigna noted that specialty care operating income will grow at the top end of expectations, which puts it around $4.0 billion in OI, which combined with Evernorth contracting slightly on the whole from $7.2 billion puts the PBM around $3.0 billion).
Cigna mentioned its investment in Shields several times as a key opportunity for Cigna in the specialty market, particularly its ability to support providers in that market, which is around 40% of the market.
CVS beats estimates and raises 2025 guidance despite Oak Street writedown
My full HTN analysis here
Aetna struck a confident tone as it continues on a recovery path, targeting 2027. It was quite pleased with its 2026 Stars performance and noted the integration between retail and Aetna as a good example of how CVS can drive future outperformance. Aetna expects flat Medicare Advantage membership in 2026 and mentioned that early signs from AEP look promising.
Oak Street was at the center of a $5.7 billion impairment in the quarter as CVS slowed future clinic growth and closed some existing clinics that don’t have a path to profitability. CVS leadership noted that VBC remains a core piece of the strategy moving forward, and this write-down reflects the smaller clinic footprint.
Most of the earnings call discussion was around what is happening in PBM and retail pharmacy spaces. CVS noted the PBM transition is experiencing some near-term bumps as customers shift pricing models, with a $240 million headwind in 2025 as contracts shift to TrueCost. Still, it also sees a significant long-term opportunity, particularly in specialty pharmacy as branded drugs move to biosimilars and generics.
UnitedHealth Group beats earnings estimates and raises guidance
My full HTN analysis here
UnitedHealthcare appears to have a clear path back to within target margin ranges in 2027 (MA = 2% - 4%, group = 7% - 9%, Medicaid = 2%). 2026 will be another challenging year as UHC expects to shed one million MA members, and notes that it will be at the low point for Medicaid, with margin going negative after being breakeven in 2025.
Optum Health has more work ahead as it navigates the last year of v28. Optum Health acknowledged it has grown away from the original intent of VBC, and is focused on solving three problems: 1. its provider network got too large, 2. operating inconsistencies via affiliated providers, and 3. taking risk in poorly designed insurance products. It expects to reduce VBC membership by 10% in 2026 with the provider network shrinking as well as it addresses those issues.
Optum Insight’s AI portfolio was perhaps the most interesting part of the call to me. It was a brief discussion, but it sounds pretty interesting, particularly once you get past the cognitive dissonance of Optum selling an AI coding tool to providers that is driving 73% productivity increases in outpatient and 23% increases in inpatient. I continue to maintain the hypothesis that AI is going to provide a competitive advantage to the largest enterprises, and it would seem Optum has a lot of opportunity here in front of it.
GLP-1s
Eli Lilly continues strong GLP-1 performance in Q3
Links: Call Transcript, Presentation, Press Release
In non-insurance earnings, Eli Lilly would have been the top performer on the stock chart above, as its stock is up almost 6% on the week, driven in part by solid GLP-1 results in Q3. Lilly raised its revenue guidance this year by $2 billion, driven by the outperformance of its core products. At a market cap of approximately $816 billion, Eli Lilly is now worth $300 growth more than the combined market caps of the five health insurers discussed above (Alignment, Centene, Cigna, CVS, UHG).
The slide below from Eli Lilly’s earnings deck highlights the GLP-1 growth story well — the US market is up 36% YoY, and Eli Lilly is taking meaningful share from Novo (even despite the CVS / Novo relationship):
Source: Lilly’s Investor Slides
LONGEVITY
Bryan Johnson’s Blueprint raises $60 million
Bryan Johnson, a tech entrepreneur who invested a good deal of energy in reversing his own aging and also has apparently founded a religion called Don’t Die, has now raised $60 million to build Blueprint, a longevity company founded on his personal longevity protocol. I’m including this screenshot of his website below because you just can’t make this stuff up:
Johnson’s “blood boy” as described on the site, is also apparently his teenage son in real life
Johnson has been on quite a journey the last few years, reportedly spending $2 million a year on his longevity protocol. If you visit the Blueprint website, you can buy things like skincare products and olive oil and the like — oh, and you’ll also get free Blueprint Nutty Butter on orders over $150!
I generally try to be productive in this newsletter even when I’m skeptical, but I… just can’t get over how insane all this longevity stuff is getting. At the same time, I can’t fault anyone for investing here. Blueprint seems like a safe bet to generate nice returns, much in the same way Kylie Cosmetics seems like a pretty great business. Selling an expensive lifestyle to a cult following seems like a great value prop, even if Nutty Butter isn’t going to change healthcare any time soon.
Other Top Headlines
As discussed in earnings above, Cigna’s PBM Evernorth announced a new rebate model earlier this week. While the move seemed to be met with some industry skepticism about how transformational it actually is — see this Drug Channels article for a good summary of the change and key questions — investors reacted more strongly after the earnings call revealed the structural changes underway at Evernorth will drive a 20% operating income decline in 2026.
Telehealth kiosk startup OnMed has signed an LOI to go public via SPAC with Berto Acquisition Corp, which trades under the meme-able ticker symbol, TACO. The TACO stock traded down 3.6% on the news this week, although Bloomberg reported that it could be valued at north of $500 million if the transaction is completed. In addition to being known as a delicious food item, OnMed has an interesting underlying business: it has been building telehealth kiosks in rural markets for the better part of a decade (see this 2019 news). OnMed sees an opportunity in the Rural Health Transformation Program, and this KFF article from earlier this year highlights how it can help expand healthcare access in America’s rural communities.
CMS released the finalized 2026 Physician Fee Schedule on Friday. This seems like a good summary of key points from Jessica Peterson on LinkedIn.
Teladoc also reported Q3 earnings this week, with revenue down 2% year over year as BetterHelp declined 8% in the period.
OpenAI completed a recapitalization, with the nonprofit arm OpenAI Foundation committing $25 billion to two areas: health and curing diseases and technical solutions to AI resilience.
Community Health Systems is selling its stake in two joint ventures, one a 270-bed hospital and one an ancillary business, to Vanderbilt University Medical Center for $600 million. VUMC owned 20% previously and is buying the remaining stake from CHS.
Funding Announcements
As discussed above, Blueprint, Bryan Johnon’s longevity lifestyle brand, raised $60 million.
Arya Health, an AI platform for home health and post-acute care, raised $18.2 million.
Honey Health, an AI platform for back-office admin tasks, raised $7.8 million. The press release noted it launched in December and has partnered with over 100 medical groups and health systems, with customers reporting profit gains of $50k - $65k per provider. A startup signing up 100 medical groups, health systems, and customers in 10 months is wild.
Corvus, an AI platform looking to automate referral workflows, was launched by Mayo Clinic and Redesign.
Allswell, a virtual care model for LGBTQ+ communities, raised $1.3 million.
What I’m Reading
Smarter Tools & Bigger Bills by Sandbox Industries
A good read on the impact of AI on medical coding, and how payers can potentially respond to providers using more AI for coding purposes. If you’re looking to understand better where startups are playing along the spectrum and how providers and payers are shifting course, check it out. Read more
Physician shortages and nurse practitioner enablement with Meghan Jewitt of Prax Health by Martin Cech
This was an interesting perspective on the opportunity to expand the scope of practice for Nurse Practitioners to help address provider supply shortages in this country. It’s a fascinating example to me of just how solvable some of these issues are and of the challenges they face. The stat that Jewitt cites in this article — that some PCPs in this country make upwards of $100k a month in fees associated with being a collaborating physician for NPs — is one of the crazier things I’ve heard in a while. Read more
How to Reform the CMS Innovation Center with a Choice and Competition Approach by Jackson Hammond
I thought this was a good read from the Paragon Institute, pondering how CMMI can drive better results centered on protecting the federal taxpayer as the foundational principle. It suggests that CMMI should focus on mandatory demonstrations of limited scope, and that WISeR and the changes to the AHEAD model have CMMI off to a promising start. Read more
Why Blues and Non-Blues Consolidation in the Next 12–36 Months Should Not Surprise Anyone by Grant Parkis
Regional payer consolidation feels like a pretty straightforward prediction for your favorite VCs’ year-end prediction piece this year at this point. This LinkedIn post does a nice job articulating some of the challenges, particularly for Blues plans. Change is afoot in the insurance world. Read more
uBiome - how microbiome testing becomes fraud by Nikhil Krishnan
A good revisiting of the uBiome story and associated fraud story, told in classic Nikhil humor-meets-informative fashion. Read more
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