A Note on Elevance Falling to a Four-Year Low
Leading in a Messy World
Elevance reported earnings yesterday. As part of that readout, it also said it was slashing guidance, citing higher medical costs in Affordable Care Act plans and lagging reimbursement from Medicaid. The forecast cut comes less than two months after Elevance affirmed its outlook. Elevance shares now trade at a four-year low.
The tide of US government money that has been pouring into health insurers for decades is reversing more abruptly than expected, putting strategies that drove profit growth for years in doubt, wrote Bloomberg’s John Tozzi late yesterday (Wall Street Worries a Health Insurance Meltdown Is Far From Over).
Setbacks in government health programs are hitting the entire industry, prompting Elevance, UnitedHealthcare Group, Centene and Molina to warn of grim times ahead.The four companies together have lost more than $300 billion of market value since mid-April, “shocking investors who piled into the insurers because they were considered reliable profit machines.” Their growth/profit solution to higher healthcare costs and changing federal policy is almost retrograde: double-digit premium hikes next year, some more than 20 percent.
The Wall Street Journal this morning (Obamacare Insurers Seek Double-Digit Premium Hikes Next Year):
At the request of The Wall Street Journal, the health-research nonprofit KFF analyzed the rate requests for the largest ACA plans by enrollment in 17 states where the insurers’ filings have already become public, as well as the District of Columbia. They showed that some of the biggest national ACA players, including Centene and Elevance Health are seeking double-digit increases in several states.
Insurers are seeking hefty 2026 rate increases for ACA marketplace plans. Blue Cross & Blue Shield of Illinois wants a 27% hike, while its sister Blue Cross plan in Texas is asking for 21%. The largest ACA plans in Washington state, Georgia and Rhode Island are all looking for premiums to surge more than 20 percent.
In any industry there's a boundary of performance for which the operational state of the art is attained. This is a place of maximum convergence. It’s a place of hyper-commoditization, where expertise of the past has lost its balance, unable and ill-equipped to surf the steady-breaking set of big and heavy waves crushing conventional understanding. This is also a place where leading with a battle cry of “transformation” has all the inspirational and persuasive energy of an emoji.
This boundary is called the 'productivity frontier', which Michael Porter defined as the “sum of all existing best practices at any given time” -- we've reached this point with healthcare in the United States.
As a general rule, you can’t “fix” an embedded economic system, whether that economic system orbits around CVS Health, Intel, Moderna, Nike, Starbucks, UnitedHealthcare or the U.S. Congress. And we’re not going to crack the mad riddle of healthcare by mounting long attacks on each other, or by chasing/buying operational “efficiency” in the hope it conjures shareholder value. That delivers what we have now: structural stalemate, static drift, innovation stagnation, systemic performance declines, a celebration of short-term wins, a stunningly bad ROI from a $5 trillion investment.
A New Narrative Layer
Everyone is up to their eyeballs in scalding crisis.
What, then, does it take to be a corporate leader in the messy new era in which the world finds itself?
“We know the health system does not work as well as it should, and we understand people’s frustrations with it,” wrote Andrew Witty in a piece for the New York Times last year (UnitedHealth Group C.E.O.: The Health Care System Is Flawed. Let’s Fix It). “No one would design a system like the one we have. And no one did. It’s a patchwork built over decades. Our mission is to help make it work better. We are willing to partner with anyone, as we always have — health care providers, employers, patients, pharmaceutical companies, governments and others — to find ways to deliver high-quality care and lower costs.”
Which we’ve been saying for decades. The same words, said the same way, servicing and sustaining the ‘narrative debt’ of “cost” in an infinite loop of “crisis” spanning generations.
The argument I’ve been making:
Healthcare is at war with cliché, not just clichés of the pen, but clichés of the mind. And nearly all healthcare content today is irrelevant. Not from the lack of output and insights, but because of it. It isn’t interesting. It doesn’t motivate. It doesn’t provoke or persuade. It doesn’t inspire or excite. (For more Blue Spoon thinking on this: What Healthcare Can Learn From Farting on Danny DeVito)
Regardless the industry, and the economic subsystem of vendors and advisors an industry uses to create and innovate and figure out where to go for growth, 'big market innovation' ultimately comes down to telling and selling a new strategy story. It is cast with unique characters in different combinations and collaborations that create space for tension and fresh dialogue.
The era of linear solutioning is over. Ditto for the quick fix of the thing that’s not fixable. Cost-cutting is devouring industries, leaders’ legacies and lives. Groupthink is eating new think for breakfast.
Our strategies and agendas have become aggressively anti-common sense.
The thing needed across the board is a different brand of strategic communications able to articulate and propagate a new narrative, a story told with new concepts to help people navigate the kinetics of collapse in a way that defines progress in terms of economic innovation, not technological. Because simply hanging loose at the crap tables and hoping for the best is the low-probability path to strategic (and professional) success.
The “cost” of healthcare isn’t the problem.
The problem is positioning the ‘production of health’ as a new industry narrative, the basis of Big System Competition, an economic concept around which to cohere and combine markets in whole new ways.
A hundred billion here, a hundred billion there, and sooner or later you’re talking about real money.
/ jgs
John G. Singer is Executive Director of Blue Spoon, the global leader in positioning strategy at a system level. To engage with a mind stretch: john@bluespoonconsulting.com