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Managed Care, Hospital Impact After Health

Emergency
Duane Wright
Team: Government
BI Senior Government Analyst

1. Managed Care, Hospitals' Hit Tolerable When Covid Emergency Ends

(Bloomberg Intelligence) -- Hospitals and Table of Contents

managed-care companies will see varying Key Topics

degrees of impact when government health Hospitals and Medicare Covid-19 Add-On Payments
NEW

policies expire at the end of the public health Return to Normal Impact on Managed Care
NEW
emergency, in October at the earliest. HCA
Healthcare and others will lose add-on payments for Covid-19 admissions, though the impact should
be manageable. Managed-care companies Centene and Molina can mitigate a 9-12% revenue hit
when state Medicaid eligibility renewals resume by boosting ACA enrollment for the roughly 17% of
Medicaid enrollees expected to lose coverage.

The Biden administration's self-imposed deadline to provide states 60 days' notice before
terminating the PHE is Aug. 14, but we believe the emergency will be extended again in mid-October
and through the winter. (07/26/22)

Key Topics

Hospitals and Medicare Covid-19 Add-On Payments

HCA, Tenet Get 3Q Covid Add-On Payments; Another Round Likely

HCA, Tenet and Universal Health Services may get marginal top-line benefits in 3Q after the public
health emergency was extended for 90 days, and with it, Medicare's 20% inpatient add-on payments
for Covid-19 admissions. Another extension is likely considering warnings about a fall-winter surge.
Extensions through June 2023 could add about 10 bps to HCA and Tenet's top lines. (07/20/22)

2. Hospitals Will Keep 20% Add-On for Covid-19 Admissions

HCA and Tenet Healthcare could see marginal top-line boosts as the July 16 extension of the public
health emergency (PHE) maintains Medicare's 20% add-on payments for inpatient Covid-19
admissions through mid-October. Further extensions of the PHE through June may add about 10 bps
to HCA and Tenet's calendar 2023 revenue. Our calculations assume low-single-digit year-over-year
growth in admissions, with 5% of them Covid-19-related. We also assume that about 20% of
coronavirus admissions are fee-for-service Medicare beneficiaries, and that future admissions are
less resource-intensive (based on management commentary), with costs roughly 15% below last
year's average of $24,000.

The 20% add-on was enacted as part of Covid-19 relief legislation in March 2020 and expires when
the PHE is terminated. (07/20/22)

This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and
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of financial instruments by BFLP, BLP or their affiliates.

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Projected Impact of Medicare FFS Covid Admissions

Source: Company filings; Bloomberg Intelligence

3. Cases, Hospitalization Rates a Guide to Next Steps

Even though coronavirus case counts and hospitalization rates are near lows from summer 2021,
concerns about a fall-winter surge likely will lead to another extension in mid-October of the public
health emergency. Covid-19 patients are using over 41,000 inpatient beds vs. 23,000 in May, and
roughly 4,100 ICU beds, up from 2,000. In addition, an increasing share (more than 50%) of Covid-19-
related hospitalizations are for those over 65, similar to rates from fall 2021. The Biden
administration will probably play it safe and extend the emergency by an additional 90 days to
ensure that enhanced Medicare provider funding will remain in place through the winter in the event
of an upswing in hospital costs for coronavirus admissions. (07/20/22)

Covid-19 Hospitalizations Trend

Source: COVID-NET: CDC

4. Extension Somewhat Softens Sequester Bite

An extension of add-on payments for Covid-19-related admissions offsets headwinds from the July 1
increase in the Medicare sequester -- to 2% from 1% -- given the once prevailing view that the public
health emergency would be terminated in July and with it the 20% bump in Medicare
reimbursements. As a result, we calculate a cumulative effect of less than 10 bps for 2022, based on
revenue projections, which helps to mitigate the impact from rising labor and supply costs.

Medicare's 2% sequester was implemented in 2011 when Congress failed to enact government-wide
spending reductions, triggering mandatory across-the-board spending cuts -- or sequestration of
funding -- for discretionary and mandatory programs. It was paused in March 2020 around the
pandemic's start and is being phased in. (07/20/22)

This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and
distributed locally by Bloomberg Finance LP ("BFLP") and its subsidiaries in all jurisdictions other than Argentina, Bermuda, China, India,
Japan and Korea (the ("BFLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg LP ("BLP"). BLP provides BFLP with all the global
marketing and operational support and service for the Services and distributes the Services either directly or through a non-BFLP
subsidiary in the BLP Countries. BFLP, BLP and their affiliates do not provide investment advice, and nothing herein shall constitute an offer
of financial instruments by BFLP, BLP or their affiliates.

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Sequestration Impact ($ Million)

Source: Bloomberg Intelligence

Return to Normal Impact on Managed Care

Centene, Molina Can Mitigate Post-Pandemic Medicaid Hit by 25%

Centene and Molina can mitigate a possible 9-12% revenue hit when the public health emergency
ends, as early as October but more likely in 1H. We calculate that enrolling individuals losing
Medicaid coverage into a company-sponsored ACA marketplace plan may reduce the hit by 25%.
UnitedHealth faces smaller headwinds given a broad revenue base and employer-sponsored
insurance segment. (07/22/22)

5. Medicaid Loss Could Be Mitigated With ACA Crossover

Centene and Molina could reduce potential 900- and 1,200-bp revenue hits, respectively, by about
25% when Medicaid eligibility renewals begin at the end of the public-health emergency (PHE) by
transitioning those no longer Medicaid-eligible into an ACA marketplace plan. In our scenario, roughly
17% of Medicaid enrollees will lose coverage, with one-quarter of those eligible for a subsidized ACA
marketplace plan. Centene and Molina's Medicaid revenue is 65% and 79% of total premium income,
respectively, so headwinds are mitigated where they can enroll individuals no longer eligible for
Medicaid into an ACA plan. Centene is best positioned in 25 states with both a Medicaid and
Marketplace footprint.

States have 14 months after the PHE to complete eligibility renewals, likely shifting most of the top-
line impact into 2024. (07/22/22)

Current Revenue Breakdown, ACA Rollover Scenario

Source: Company filings; Bloomberg Intelligence

6. UnitedHealth Less Exposed; ACA Opportunities Exist

UnitedHealth could offset a 250-bp decline in revenue by roughly 40 bps when state Medicaid
eligibility renewal processes resume at the end of the public-health emergency, but the overall
impact is manageable, given the company's diverse revenue base. UnitedHealth's top-line effect
reflects modest overlap between states where it has both a Medicaid and ACA marketplace presence.
The revenue impact could be further mitigated, given its ACA presence in states where it doesn't
have a Medicaid managed-care footprint and where roughly 250,000 individuals rolling off Medicaid
could be ACA eligible. Further expansion of its ACA footprint -- 18 states in 2022 -- would also help.

This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and
distributed locally by Bloomberg Finance LP ("BFLP") and its subsidiaries in all jurisdictions other than Argentina, Bermuda, China, India,
Japan and Korea (the ("BFLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg LP ("BLP"). BLP provides BFLP with all the global
marketing and operational support and service for the Services and distributes the Services either directly or through a non-BFLP
subsidiary in the BLP Countries. BFLP, BLP and their affiliates do not provide investment advice, and nothing herein shall constitute an offer
of financial instruments by BFLP, BLP or their affiliates.

Bloomberg® 08/01/2022 06:35:00

 This document is being provided for the exclusive use of WELZIA GESTION2 at WELZIA MANAGEMENT SGIIC, SA. Not for redistribution.

UnitedHealth could also benefit as individuals transition from Medicaid to large group coverage,
another segment of the strength for the insurer. (07/22/22)

UnitedHealth's ACA Rollover Scenario

Source: Bloomberg Intelligence

7. Potential Timeline for PHE and Medicaid Eligibility Renewals

Even though coronavirus case counts and hospitalization rates are near lows from summer 2021,
concerns about a fall-winter surge likely will lead to another extension in mid-October of the public
health emergency. We don't rule out additional extensions into 2023. The Biden administration
probably will play it safe and extend the emergency by an additional 90 days to ensure that
enhanced Medicare provider funding stays in place through the winter in the event of an upswing in
hospital costs for coronavirus admissions.

A potential scenario is that the PHE is terminated in July 2023. States would receive enhanced
Medicaid funding through the end of 3Q23 but the continuous enrollment requirement would end July
21, 2023. States would have through October 2024 to complete the redetermination process.
(07/22/22)

Public Health Emergency Timeline Scenario

Source: Bloomberg Intelligence

8. Medicaid Pay Bump End Will Lead to Enrollment Drop

Revenue headwinds for managed-care companies will kick in when states resume Medicaid eligibility
renewals after the PHE is terminated. States get a 6.2% bump in federal matching funds to help
respond to increased Medicaid demand created by the pandemic and, in exchange, are required to
pause eligibility verification and provide continuous coverage. The enhanced matching funds are
available through the quarter in which the public-health emergency period ends -- in October, at the
earliest -- but the continuous enrollment requirement would end on the last day of the month in which
the PHE is terminated.

An estimated 17% of Medicaid enrollees could lose coverage during the renewal process. States will
receive 60 days' advance notice before the PHE is terminated and have 14 months to complete the
eligibility renewal process. (07/22/22)

This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and
distributed locally by Bloomberg Finance LP ("BFLP") and its subsidiaries in all jurisdictions other than Argentina, Bermuda, China, India,
Japan and Korea (the ("BFLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg LP ("BLP"). BLP provides BFLP with all the global
marketing and operational support and service for the Services and distributes the Services either directly or through a non-BFLP
subsidiary in the BLP Countries. BFLP, BLP and their affiliates do not provide investment advice, and nothing herein shall constitute an offer
of financial instruments by BFLP, BLP or their affiliates.

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Medicaid Enrollment and Market Share

Source: CMS; Company filings

To contact the analyst for this research:

Duane Wright at dwright179@bloomberg.net

This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and
distributed locally by Bloomberg Finance LP ("BFLP") and its subsidiaries in all jurisdictions other than Argentina, Bermuda, China, India,
Japan and Korea (the ("BFLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg LP ("BLP"). BLP provides BFLP with all the global
marketing and operational support and service for the Services and distributes the Services either directly or through a non-BFLP
subsidiary in the BLP Countries. BFLP, BLP and their affiliates do not provide investment advice, and nothing herein shall constitute an offer
of financial instruments by BFLP, BLP or their affiliates.

Bloomberg® 08/01/2022 06:35:00