UnitedHealth Group's first quarter report Tuesday showing projected earnings for 2019 above expectations has helped to turn around sluggish health insurance performance on Wall Street that's been blamed on a proposed policy to change the current drug rebate rule.
Tuesday's earnings call, UnitedHealth Group CEO David Wichmann said he is less concerned about the rebate rule than the return of the health insurance tax in 2020 and its effect on affordability for consumers.
"The thing I am concerned about is the return of the health insurance tax in 2020 that will increase the cost to healthcare by at least $20 billion for 142 million people," Wichmann said. "And If you do the math on that, that increases premiums for a senior couple by $500 and families with small business coverage by about the same amount. That outcome from our standpoint is entirely unacceptable. Healthcare already costs too much."'
The health insurance tax was suspended for 2019. UnitedHealth will continue to advocate for another deferral, Wichmann said.
The Centers for Medicare and Medicaid Services and a coinciding proposed bill would pass drug manufacturer rebates directly to Medicare, Medicaid and commercial beneficiaries at the pharmacy counter.
Currently, pharmacy benefit managers pass the rebates from manufacturers to insurers, which use them to lower overall premiums.
Changing the current rebate system is expected to increase premiums for 2020 by 25 percent, according to America's Health Insurance Plans. Insurers are going through the process now of setting rates for next year.
The point-of-sale rebate does not impact UnitedHealth's bottom line, executives said Tuesday.
The majority of drugs, 90 percent, are generic, which have no rebates, according to John Prince, chief executive officer for OptumRx.
Wichmann said there is the perception that people are deeply exposed to price inflation in the pharmacy. But most of their plan designs have protections in place such as pharmacy co-pay, he said.
"For situations where consumers are exposed to high inflation on list prices of drugs, we think it's important that discounts are applied at the point of service," Wichmann said.
UnitedHealth has already converted, or is in the process of converting, 8 million fully insured commercial lives to point-of-sale rebates, he said.
Andrew Witty, chief executive officer for Optum, said there is concern, with manufacturers having independence on the list price of drugs, about ensuring there is an ongoing mechanism to ensure negotiations.
"There is a real risk that if there is a situation where rebates or a mechanism to replace rebates was not in place, we could see significant drug price inflation over the next years that would set back a huge amount of the effort that's been achieved over the last 10, 15 years to try to bring more control to the area," Witty said.
Net earnings for the three months ended March 31 were $3.5 billion, compared to $2.9 billion in 2018.
Earnings from operations for the quarter increased 19 percent to $4.8 billion, with strong earnings growth at Optum and UnitedHealthcare.
Revenues of $60.3 billion grew 9 percent year-over-year.
The income tax rate of 19.7 percent in first-quarter 2019 decreased from 21.5 percent in first quarter 2018, reflecting the effect of the health insurance tax deferral.
The insurance arm, UnitedHealthcare, grew to serve 880,000 more people with medical benefits over the past year, helping grow first-quarter 2019 revenues by $3.4 billion, or 7.6 percent, to $48.9 billion. First-quarter 2019 earnings from operations grew 23.1 percent to $3 billion.
ON THE RECORD
"Our employees' shared vision of improving the health of the people we serve and the performance of health systems for everyone is producing value for society and driving consistent growth for our businesses," said Wichmann.
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