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瑞信-美股-医疗保健行业-管理式医疗:政策风暴正在减弱-7-27页.pdf
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DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST
CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit
Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware
that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report
as only a single factor in making their investment decision.
12 July 2019
Americas/United States
Equity Research
Managed Care
Managed Care
QUARTERLY
Research Analysts
A.J. Rice
212 325 8134
aj.rice@credit-suisse.com
Jailendra Singh
212 325 8121
jailendra.singh@credit-suisse.com
Eduardo Ron
212 325 7491
eduardo.ron@credit-suisse.com
Caleb Harris, CPA
212 325 7458
caleb.harris@credit-suisse.com
All Aboard! Policy Storm Is Abating; MCO
Train Is Leaving Station Again; 2Q19 Preview
■ We Expect a Solid Quarter for MCOs, Consistent with Expectations.
UNH will be the first managed care company to report Q2 earnings on July
18th, setting the tone for the group. Based on intra-quarter MCO
commentary and our hospital surveys, we believe medical cost trends in
Q2 have remained stable sequentially and in line with expectations. Our
Outperform-rated names are ANTM, UNH, CI and HUM.
■ Puts and Takes for Individual MCOs: Operational Upside Likely at
ANTM, UNH, and CI. Excluding adjustments related to the ACA risk
adjuster program (discussed below), expectations for most MCOs are
largely in line with management’s quarterly commentary. ANTM, CI, CNC,
and HUM have provided some commentary related to Q2 relative to their
full-year earnings outlooks. Operationally, we see potential earnings upside
for ANTM, CI, and UNH in 2Q, primarily driven by better than expected
MLR trends as well as the conservative 2Q outlook these companies
offered with their 1Q19 earnings reports. Having said this, the 2Q19
consensus for CI is skewed by some high-end outliers, which drives a
$0.10 EPS variance between CSe and consensus. Humana (MA), CVS.
(MA), WCG (PDP) and Centene (HIX) have posted unusually strong
enrollment growth in 2019. 2Q should provide incremental clarity as to how
claims on these new lives are trending. Variance relative to expectations
will be driven by whether cost trends on these new lives has been
better/worse than projected.
■ ACA Risk Adjuster True-up Should Be Favorable for CNC & CI in Q2.
For Cigna and Centene, the CMS data released in late June indicates that
money owed to the risk-adjustment program by these companies is less
than what they have accrued. This difference translates to an estimated 2Q
EPS benefit (before any offsets) of $0.09 for CI and $0.10 for CNC. While
the other MCOs have not disclosed their risk-adjustment accruals, ANTM,
UNH, and CVS/AET are slated to receive $445 mln, $72 mln and $30 mln
under the program, respectively, and HUM and WCG are in a net payable
position of roughly $13 mln and $7 mln, respectively.
■ 2Q19 vs. 1Q19: DC Policy/Regulatory Backdrop Markedly Better. Since
1Q earnings, the noise around Medicare-for-All has eased. The Medicare
drug rebate proposal has been dropped. Finally, the consensus view now
incorporates in our view the return of the HIF in 2020. With this improved
macro backdrop, we believe the favorable fundamentals for most MCOs
will once again drive stock price performance. Given the favorable
fundamentals we foresee, we expect MCOs to generally beat the overall
market over the next six months.
12 July 2019
Managed Care 2
Table of Contents
Executive Summary 3
Utilization and MLR Trend Expectations for 2Q19 ...................................................5
Risk-Adjustment Program Update............................................................................5
Company-by-Company Expectations for 2Q19 Earnings 7
Anthem.....................................................................................................................7
Cigna........................................................................................................................8
Centene....................................................................................................................8
CVS. Health .............................................................................................................9
Humana..................................................................................................................10
UnitedHealth Group ...............................................................................................11
WellCare Health Plans ...........................................................................................12
Price Performance and Valuation 13
Industry Operating Statistics 16
Commercial Enrollment..........................................................................................16
Commercial Fully Insured (“Risk-based”) Enrollment 17
Commercial Self-Insured (“Non-Risk/ASO based”) Enrollment 17
Managed Medicaid Enrollment...............................................................................18
Medicare Advantage Enrollment ............................................................................19
PDP Enrollment Trends .........................................................................................20
MLR/Utilization Trends...........................................................................................21
Consolidated MLR Trends 21
Investment Income Trends.....................................................................................23
Adjusted Pre-Tax Margin Trends ...........................................................................24
12 July 2019
Managed Care 3
Executive Summary
UNH will be the first managed care company to report second quarter earnings on
Thursday, July 18th, setting the tone for the group. Based on intra-quarter company
commentary and our hospital survey results, we believe medical cost trends in Q2 have
remained stable sequentially and in line with expectations. As a result, we expect a solid
quarter for managed care companies.
On a Y/Y basis, MCOs will benefit from the Health Insurer Fee (HIF) moratorium and
strong enrollment growth, primarily in Medicare Advantage. However, there are several
items which might be favorable or unfavorable to earnings depending upon the company.
For example, given its positive seasonal earnings contribution in 1H, HIX will be a Y/Y
positive for earnings at CNC (given its growth in enrollment in this business line).
Alternatively, expectations for margin normalization in the Individual business could be a
Y/Y headwind for CNC, ANTM, and CI. Share buybacks should continue to contribute to
earnings for UNH, HUM, ANTM, and CI.
Excluding adjustments related to the ACA risk adjuster program (discussed below),
expectations for most MCOs are largely in line with management’s quarterly commentary.
Anthem, Cigna, Centene, and Humana have prior commentary about their Q2
expectations relative to their full-year earnings outlooks. However, operationally, we see
potential earnings upside for ANTM, CI, and UNH in 2Q, primarily driven by the potential
for better than expected MLR trends relative to what we believe were conservative 2Q
outlooks offered with their 1Q19 earnings releases.
Additionally, CI and CNC should also have some modest benefit related to the ACA risk
adjusters in the quarter. However, we note, 2Q19 consensus for CI is skewed by some
outliers at the high-end, driving a $0.10 EPS variance between CSe and Consensus.
Humana (MA), CVS. (MA), WCG (PDP), and Centene (HIX) have seen unusually high
membership growth in 2019. 2Q should provide incremental clarity as to how claims
experience on these new lives is trending.
Company-Specific Comments Regarding 2Q19
Specifically, Anthem expects its 1H19 EPS to approach mid-50% range of its full-year
2019 EPS (“Greater Than” $19.20) – which the company reiterated as recently as late
June. ANTM’s outlook implies $4.53 in 2Q19 (using 55% of 2019 outlook for 1H19) which
compares to our estimate of $4.53 and cons of $4.62 (roughly 55% of 2019 cons EPS
estimate).
Cigna expects 45-46% of its full year EPS in 1H19 (implying 2Q19 EPS of $3.60 vs.
CS/Cons: $3.65/$3.75), which takes into consideration seasonality patterns within the
company’s Health Services segment in particular driving a greater proportion of its
earnings in 2H19, as well as continued progress on realization of synergies throughout the
year. Cigna had $50 mln of favorable PYD in 1Q19; the company did not include any
further PYD in its guidance for Q2 or the balance of the year.
Centene expects 60% of its earnings to be 1H19, which implies 2Q19 EPS of $1.15-$1.27
(CSe/Cons: $1.24). The sequential EPS decline in 2Q19 is primarily attributable to the
step-up in HIX MLR partially offset by an expected favorable risk-adjustment true-up. At its
June 2019 Investor Day, CNC highlighted that it expects its risk-adjustment payable to be
lower than the 12/31/2018 estimate by more than $200 mln. The CMS data indicates that
the money owed to the ACA risk-adjustment program by the company is $669 mln, lower
than what Centene has accrued ($928 mln) by roughly $259 mln. This difference
translates into an estimated EPS benefit of $0.10 for Centene.
Humana noted on its 1Q19 call that it expects Q2 to be in the low 30% range relative to
the full year outlook on a percentage basis (CSe: 30.5%; Cons: 30.3%). This would imply
an EPS range of $5.18-$5.78 (CSe: $5.30; Cons: $5.31). The Y/Y higher portion of
12 July 2019
Managed Care 4
earnings coming in Q2 is attributable to some of the company’s investments and utilization
patterns which are back-half weighted. As recently as mid-June, Humana indicated that its
medical cost trends continue to run well. The company is particularly having a good year
on the Medicare side. HUM continues to see migration from inpatient to outpatient causing
a decline Y/Y in its admissions per thousand.
We expect CVS. to meet our EPS expectation of $1.70 (Cons: $1.69), up 0.6% Y/Y. CVS.
expects to see the rate of adjusted operating income growth in Retail/LTC and PBM to
improve as the year progresses. Adjusted operating income within its Health Care Benefits
segment is expected to be greatest in Q1 and lowest in Q4. In its Retail/LTC segment,
CVS. will start annualizing the investments made from tax reform to colleagues at retail
stores beginning 2Q19. Additionally, the segment Y/Y growth should sequentially benefit
from Easter timing.
We expect UNH to meet or beat our 2Q19 EPS expectation of $3.41, up 8.3% Y/Y. The
current consensus is $3.45. Q1 results (up 22.7% Y/Y) benefitted from the day timing
which inflated the Y/Y growth rate, and UNH also generally experienced strong Q1
performance overall. These factors need to be taken into account in considering the Q1 to
Q2 trend.
Given CNC’s pending acquisition of WCG, it is unclear if WellCare will host an earnings
conference call. Recall, WCG hosted a 1Q19 conference call but only offered its prepared
remarks and did not take questions.
Figure 1: 2Q19 Earnings Release Details and Estimates
ANTM
CI
CNC
CVS
HUM
UNH
WCG
Earnings Report
Date/Time
24-Jul 6:00
AM ET
01-Aug 6:00
AM ET
23-Jul 6:00
AM ET
07-Aug 6:55
AM ET
31-Jul 6:30
AM ET
18-Jul 6:00
AM ET
29-Jul 6:00
AM ET
Conference Call
Date/Time
24-Jul 8:30
AM ET
01-Aug 8:30
AM ET
23-Jul 8:30
AM ET
07-Aug 8:00
AM ET
31-Jul 9:00
AM ET
18-Jul 8:45
AM ET
N.D.
Conference Call
Details
800-553-0358
N/A
877-883-0383
19467577
N/A
888-625-7430
877-830-2596
UNHQ219
N/A
2Q19 EPS
CS Estimate
$4.53
$3.65
$1.24
$1.70
$5.30
$3.41
$4.20
Y/Y Change
6.7%
-6.2%
37.3%
0.6%
33.7%
8.3%
14.0%
Consensus (Mean)
$4.62
$3.75
$1.24
$1.69
$5.31
$3.45
$4.15
Y/Y Change
8.7%
-3.6%
37.8%
-0.0%
34.1%
9.7%
12.6%
Consensus (Median)
$4.59
$3.66
$1.24
$1.70
$5.35
$3.46
$4.19
Y/Y Change
8.0%
-5.9%
37.8%
0.6%
35.1%
10.0%
13.7%
Consensus Range
$4.5 - $4.86
$3.58 - $4.34
$1.15 - $1.31
$1.65 - $1.71
$4.49 - $5.61
$3.35 - $3.50
$3.75 - $4.50
2Q19 MLR
CS Estimate
86.4%
81.0%
86.4%
83.5%
85.4%
83.2%
87.8%
Y/Y Change (in bps)
300
200
90
N/A
130
130
220
Consensus (Mean)
85.8%
80.8%
86.4%
N.A
85.7%
83.1%
87.6%
Y/Y Change (in bps)
240
180
90
N/A
160
120
210
Source: Company data, Credit Suisse estimates; FactSet
12 July 2019
Managed Care 5
Utilization and MLR Trend Expectations for 2Q19
Overall, we expect the consolidated MLR for the MCOs in our coverage (ex-CVS. and
legacy Aetna) to be up 180 bps, on average Y/Y in 2Q19, driven by increases in the ratio
for MCOs in our coverage due to the HIF moratorium in 2019 as well as individual
business margin normalization for CNC, ANTM, and CI. CNC’s Y/Y MLR increase is also
driven by its acquisition of Fidelis. Other factors impacting ANTM’s MLR include significant
MA growth which is partially offset by improving performance in Medicaid.
Figure 2: Quarterly Consolidated MLR Trends
83.8%
83.8%
83.6%
84.1%
84.3%
83.5%
83.7%
85.3%
82.4%
82.7%
82.8%
84.7%
84.3%
84.8%
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19E
Source: Company data, Credit Suisse estimates
Risk-Adjustment Program Update
On June 28
th
, CMS released the final 2018 plan year risk-adjustment summary report and
accompanying issuer transfer report. For CNC, the CMS data suggests the 2018 risk-
adjustment payable at $669 mln, roughly 25.5% better than CNC’s accrual of $928 mln.
During its June Investor Day, CNC indicated that its outlook assumes more than a $200
mln favorable true-up. This different translates to an estimated EPS benefit of $0.10 for the
company. For MOH, the CMS data indicates that the money owed to the risk-adjustment
program is lower than what they have accrued. The difference translates to an estimated
EPS benefit of $0.69 (roughly 6.2%) for MOH, relative to 2019 consensus EPS est. Finally,
the data indicates a roughly $0.09, or 0.6% of our 2019 EPS est., benefit for Cigna. These
companies may realize at least this net difference as a benefit to earnings in Q2.
The CMS’s data indicates Anthem, UnitedHealthcare, and Aetna will receive $445 mln,
$72 mln and $30 mln under the program, respectively. Further, Humana (related to small
group) and WellCare (related to individual biz) are in a net payable position of roughly $13
mln and $7 mln, respectively. These companies have not provided enough disclosure on
their accrual for the program to compare the final amount with their expectation.
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