Mr. Nersessian: I cover the managed care sector, so that includes all the companies in the commercial Medicare and Medicaid segments, as well as companies that specialize in specialty services, disease management and behavioral health.
TWST: How are the companies you cover being affected by the recession and/or the health care program that's being developed in Washington?
Mr. Nersessian: There are two distinct sets of ramifications across both of those issues. The impact of the economy varies depending on what market segments the specific managed care company is focused on. So certainly, the preponderance of the industry's revenue and earnings are derived from employer-sponsored health insurance. The commercial business is feeling the effects of declining employment levels across the size spectrum of their customer base, from multi-state, national employers all the way down to small businesses with 50 or less employees. Health plans are seeing increasing pressure on pricing as those corporations are buying down their benefit plans to a lower level of insurance coverage than they've bought in the past, and they're looking to push more costs onto the employees. As a consequence, you're seeing some employees opt out of the insurance pool altogether, in some cases in the small group areas, some employers opting out altogether. And so there's been a lot of pressure on the demand side in terms of trying to buy down towards leaner and leaner benefit designs, and it's really putting a tremendous amount of top-line pressure on the managed care industry.
On the supply side, we're seeing a different set of impacts. The managed care companies are seeing some pressure from the provider side, including hospitals and physicians on rates. In many regions of the country, hospitals and providers are experiencing greater uninsured admissions as well as a higher percentage of Medicare and Medicaid volumes, where the reimbursement is much lower than it is for commercial patients. That is putting more pressure on the cost side for certain managed care organizations, as those providers are putting more rate pressure on managed care companies. And so you've seen both of those effects, and those effects predominantly have been impacting the employer-sponsored arena.
In the Medicaid arena, the Medicaid managed care segment has experienced a completely different set of circumstances, where the rate of enrollment growth has accelerated quite dramatically. In a normal economic environment, we have seen low single-digit organic enrollment growth rates for the Medicaid managed care companies. That's been accelerating into the high single digits in the last year, and in some cases into double digits as people lose their jobs and they qualify for Medicaid. The state Medicaid caseloads really have started expanding quite dramatically. So you're seeing almost the opposite volume impact in Medicaid than what you have seen in the employer-sponsored segment. Some of the same cost pressures are impacting the Medicaid segment, however, as the Medicaid HMOs have identified increasing coding intensity on the part of providers as a source of cost pressure.
Finally, Medicare has not really been affected much by the economy at all, and so the companies that predominantly serve this segment have been less impacted.
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