Is it time to put the frenzied dynamics of healthcare – Medicare Advantage in particular – into perspective so that an industry tasked with delivering better, more affordable outcomes doesn’t confuse Wall Street’s oft-capricious ticker with long-term value? term?
About a month ago, Humana stock price fell more than 18% following significantly reduced Medicare Advantage (MA) enrollment growth projections. Financial news outlets reported hourly on Humana and its competitors. During the same period and in contrast, big tech was abuzz with the growing force of healthcare in the consumer digital space at CES 2022 – an annual conference that Humana (for the past few years) has been at. the only health insurer to feature and is still the CES organization. only member of the health plan.
But Humana and CES introduce a larger issue beyond their recent titles. Is it time to put the frenzied dynamics of healthcare – Medicare Advantage in particular – into perspective so that an industry tasked with delivering better, more affordable outcomes doesn’t confuse Wall Street’s oft-capricious ticker with long-term value? term?
The history of stock prices and the impact of competitors on Wall Street
Humana is the second-largest insurer of MA plans, which generate the bulk of its enrollments. So when the company nearly halved its 2022 growth projections, it mattered. And while it’s true that Humana’s market fall was the most precipitous – and its stock price is still well below its previous value – most of its competitors are also bouncing back.
But bouncing from what? Most of the other MA plan projections had remained strong, and early 2022 Annual Enrollment Period (AEP) numbers showed gains from the same plans whose stocks had fallen alongside those of Humana. How does a plan bring down its competitors as they grow against the same headwinds in an MA market whose overall annual enrollment increased by almost 9%. It’s a complex picture and over the past two years every element has changed, sometimes in opposite directions.
Complex market dynamics
It starts with all that MA growth to have. In these green fields, competition and changing market shares are a constant story. Medicare is, in the words of Gail Boudreaux, CEO of Anthem, a very cohesive competitive environment.
Competitive factors include market and plan expansion to meet aging Medicare volumes as well as a sticky topic during this AEP: pricing. In discussing the results, Humana and Cigna cited competitor weakness, with Humana CEO Bruce Broussard adding aggressive marketing and sales tactics. Bushman noted to analysts that the market “became commonplace… [and] we’re not going to play this game.”
Analysts disagreed while affirming Humana’s emphasis on the importance of value creation and long-term vision, and Fitch Ratings Senior Director Brad Ellis added that “discipline prices” is a bigger concern than enrollment projections.
Fever of disturbances?
Discussions of pricing and commoditization are tied to some degree to another AM dynamic: the threat that start-up insurers pose to incumbents. And while these new entrants have taken market share from established players, these incumbents also regularly steal market share from one another. These AEP, MA disruptors have also lost listing to their larger competitors, some also fall short of their projections.
On these dynamics, Tim Noel, CEO of UnitedHealthcare for Medicare and Retirement also noted: “The trend towards more entrants, [and] better benefits have really been multi-year… And we consider that trend to be very good for seniors and also very good for the overall growth of the Medicare Advantage industry.
These insights are what healthcare needs: long-term views that balance all the “hot” stuff coming out of the aforementioned CES conference and the massive amounts of venture capital (VC) funding it.
Red-hot can cool quickly. Countless health-tech stocks have fallen significantly following massive valuations and IPOs. It’s worth wondering if there might be a touch of irrational exuberance in the public and private MA markets.
Value vs Appraisal
There are concerns that the valuations of MA startups are too inflated. And when it comes to the flush MA market in general, a caveat has begun to sound. MA enrollments are expected to overtake traditional Medicare by 2030, but most of this growth will be captured by 2025, around the same time that the MA Hospital Trust Fund health insurance is should be insolvent and healthcare spending in the United States is should exceed 20% of GDP.
Hence the urgency of AM and a return to the question: as competition increases and more publicly traded healthcare companies extend their venture capital arms, the distinctions between Are valuation and real value beginning to fade, if not operationally than psychologically? “Double-double” growth projections are not uncommon, even among health care payers. But how desirable is this from an industry tasked with saving lives and when health equity is so hopelessly lagging behind?
To ask these questions is to question the free market itself. Lest it sound naive, that’s exactly what one of the founders of the Lean Startup method did. Eric Ries launched the Long term scholarship (LTSE) in September 2020 with a powerful statement: “Modern businesses measure progress over decades, not financial quarters.” In June 2021, growth companies Asana and Twilio joined the LTSE, which requires strategic transparency and value-based executive compensation linked to results.
It usually takes a major market correction for such changes to occur (e.g. 2008) and we are at one: the pandemic. Health plans have had to adapt quickly, unexpectedly fund COVID-19 care and patiently weather revenue losses. They have largely succeeded. But the pandemic is not over, and neither is its impact on the healthcare sector or the stock market in general.
The moment of mindful health care
In 1971, the gold standard of the dollar fell to the underlying barometer that has always been present: the standard of hopes and fears, otherwise known as market forces. This system offers greater flexibility, but is based on escalating risk and reward. This description sounds like the value-based design approach healthcare is trying to reform reimbursement, improve care, and deliver value.
So where does that leave things? If we come full circle, Humana stock is now steadily rebounding from a positive Q4 earnings call. Also expect the company to return at a future CES conference, joined by competitors. In the meantime, wait and see. And while it’s not something the stock market likes to do, perhaps much like the myriad digital meditation apps healthcare is investing in, the industry could enjoy a moment of mindfulness.
Laura Beerman is a staff writer for HealthLeaders.