From comments made by management at Coventry’s presentation at Morgan Stanley investor day last week, the company’s efforts to refocus on core businesses appears to be working.
Of he two key takeaways one was wildly obvious while the other much less so. The company’s tight, almost monomaniacal focus on medical loss ratio (MLR) was quite noticeable; CFO Shawn Guertin’s comments about Coventry’s investment in clinical management was not, yet perhaps no less important.
First, the results for the first half of 2009. It went well. Commercial MLR looks to be coming in about 50 basis points better than initially projected, Medicare growth has been very good and MLR looking OK. And no surprise, Commercial membership and specifically risk membership (fully insured, mostly small group business) is ‘under pressure’.
Projecting forward, Guertin said for the second half of the year, commercial MLR is top of mind, with an expectation of some increase in COBRA takeup due to the Federal subsidy in ARRA, swine flu and deductible seasonality (as the year ends, more members have hit their deductible so medical costs payable by insurers increase). They are most concerned about COBRA’s impact on MLR, and have pushed projected MLR up 50 basis points due to the increased uptake.
Coventry ‘grew tremendously this year in Medicare’, and that is good, but they are not yet entirely comfortable with the growth and are ‘still watching and tracking pretty closely’ to try to identify potential cost spikes.
What’s going to happen with goig forward? Coventry is seeking to strike a balance between membership loss and price. Still focused on managing SGA broadly under CEO/Chairman Allen Wise’ direction.
One question asked if there is anything they are looking at exiting; Guertin said no, they are pretty much completed with the process of cutting non-core businesses. Don’t look for them to sell businesses, including the Workers Comp business. In fact Guertin highlighted the WC business as different piece that has ‘performed very well this year and continues to perform well’ and will continue to grow going forward.
Regarding reform, if reform includes community rating and universal mandate that will remove what Guertin believes is a competitive advantage for Coventry.
They’ve done a lot to improve their underwriting skill, he sees this as a loss of an advantage they had but if these changes occur they will be left with a level playing field, These days the company is doing a lot of thinking about the cost proposition of the product and value, and how best to compete in a post-reform market. In what was a bit of a rambling comment on Coventry’s strategy, Guertin said they are asking ‘Should we tailor a high performance network; we can’t change plan design but truly need to manage cost, we are investing in clinical programs and network design will be key to that.’ (not verbatim but pretty close)
Guertin got back on track responding to a question about reform scenarios, saying words to the effect that their ‘basis for competition has always been about cost and thinks that may help them as it is the ‘core of what they are’. They would spend their money on clinical and network management as opposed to brand or marketing due to the overwhelming marketing advantage of blues. Coventry wants to be positioned as a high quality but really cost effective player; think of Coventry as the Southwest Airlines in an insurance exchange, and they are trying to drive company in that direction.
What does this mean?
Coventry has never been about medical management. They are a pricing arbitrager and risk selector, priding themselves on managing the delta between insurance premiums and medical costs. They have not ever claimed to be expert in managing the medical costs themselves.
If reform comes, they will need to get really good at managing medical really fast. Coventry’s competitors aren’t exactly fully prepared for the new world either, but many of the Blues, along with Aetna, are a lot further along than Coventry. They also have market share (which Coventry doesn’t), solid brand images (which Coventry doesn’t), and in some instances substantially better relationships with providers.
I still don’t think we’ll get comprehensive reform this time around, and if we don’t Coventry may think they’ve dodged a bullet. But sooner or later reform will happen, and those healthplans that aren’t very good at managing medical are going to be toast.

and a more complete and diverse analysis won’t be found. Read this week’s edition to understand what worked, what didn’t, and what the future will hold for reform

The Baucus bill is out, and despite multiple concessions made in an effort to garner some GOP support, not a single Republican Senator has voiced even equivocal support. While Sens Snowe Grassley and Enzi allow that they’re still negotiating, the list of objections likely precludes endorsement by all three. The only potential R supporter at thus juncture is Olympia Snowe who is said to be waiting for CBO’s scoring (assessment of the bill’s cost).
Without any GOP support some Dems will likely wonder why the bill contains provisions that are not viewed favorably by many of their supporters. The question is a fair one. If the Baucus bill isn’t enough to capture a few GOP votes, anything more will be so unacceptable to liberal Democrats that they may withhold their support from any bill with additional concessions to Grassley et al.
We may well see a game of brinksmanship begin soon as the more liberal Dems seek to strip out the co-op, add a public option and universal mandate along with higher subsidies for lower income folks.
We’re about to find out just how serious the Democrats are about health reform, and just how much the GOP wants to block it.

Today’s Washington Post reports that Sens. Enzi and Grassley have asked Sen Baucua to consider a lengthy list of changes to his health reform bill, changes that include elimination of state funding for the expansion of Medicaid, reduction or elimination of the penalty for failure to obtain health insurance, and myriad other modifications.
As I noted before the President’s speech last week, these two Senators are the key to health reform’s passage. With the revelation that there’s much they don’t like about the Baucua effort, it is growing increasingly clear that reform’s chances are grim indeed. Recall that the Baucua bill doesn’t have a public option, specifically prohibits the use of tax dollars to fund care for undocumented workers, and is not exactly abortion-friendly either. In sum, this is NOT a liberal bill.
Yet the gang of two remain unsupportive despite Baucus’ efforts to present them with a bill that avoids most of the really contentious issues.
The net is this. If two of the more moderate GOP Senators are this unhappy with the Baucus bill, the Dem choices are stark. Either compromise so much that the final bill becomes all but meaningless or pick the reconciliation option.
Come to think of it, there is a third choice; use the reconciliation process to ram thru narrow, specific bills targeted to drastically cut reimbursement for pharma, hospitals and , medical devices; slash Medicare Advantage funding; and revamp Medicare’s provider reimbursement to end fee for service and move to episode of care over time.
That may be the best option. The threat alone may force stakeholders to get serious.
And it sure would be fun to watch!

The work comp insurance industry has been hit hard by declining revenues and a big drop in investment income. While the investment picture is brightening somewhat, the revenue side is not getting any better.
Continued high unemployment and associated smaller payrolls has directly affected premium income, while higher claim severity and a soft market that won’t end are adding to work comp executives’ misery.
And execs have a lot of reason to be miserable. Consider:

• Net written premiums declined twelve percent in 2008, the third consecutive year of decreases
• The combined ratio (claims plus admin expense) climbed to 104.4% last year – historically not so bad, but given the awful investment returns, bad enough
• Medical costs continue to climb significantly faster than the overall medical CPI
• Net income for the entire industry declined to below a billion dollars, a drop of over sixty percent from the prior year

Remember that perspective is historical – things will turn around, although it may take another twelve months or so. If employment picks up, as it should as the economy strengthens, premiums will head north. With AIG somewhat out of the woods, brokers and agents are expecting the pricing wars to taper off (some opine that AIG has been aggressively pricing business in an effort to hold on to clients and grab much needed revenue). If – a huge if – health reform efforts bear fruit, there will be less pressure on providers to cost-shift to workers comp payers. And the investment returns lookk to be recovering somewhat.