Less flu cases means more money for health insurers

A much tamer flu season has been great news for health insurers whose bottom line took quite a hit last winter

A warm winter is helping create the slowest start to the U.S. flu season in five years, during what is typically a dangerous time of year for the elderly and a costly one for health insurers.

The flu virus thrives in a dry, cold environment. It badly hurt insurers’ financial results last year, when Aetna Inc. and Anthem Inc. blamed epidemic levels of influenza for exceeding fourth-quarter estimates of their spending on medical care. This year may be the opposite: Health insurer Centene Corp., for example, raised its 2015 earnings guidance by about 5 cents last month, thanks largely to the absence of flu.

On the other hand hospitals, whose business benefits as sick people show up in the emergency room, and companies like Alere Inc., which makes tests for influenza, will see fewer patients. Raj Denhoy, an analyst at Jefferies LLC, said Alere may have a $12 million to $14 million revenue shortfall because of the mild season. The hospital industry already has slumped as some Americans who signed up for insurance under the Patient Protection and Affordable Care Act dropped their coverage.
“It’s definitely negative for hospitals, and much more positive for insurers,” said Jason McGorman, an analyst at Bloomberg Intelligence. The severe flu season a year ago boosted emergency department visits and admissions at hospital chains including HCA Holdings Inc. and Community Health Systems Inc., helping their results during the final quarter of 2014.

Warm Outlook

Hospital investors already may be anticipating a downturn. Raymond James Financial analyst John Ransom cut his rating for Community Health on Tuesday, in part due to the weak flu season and also because of tepid business from the Affordable Care Act. The company’s shares are down 14 percent this week to a 3 1/2- year low.

There is a high chance the northern and western U.S. will continue to have mild temperatures through March, in part because of El Nino, a warming of the equatorial Pacific Ocean that disrupts worldwide weather, according to the U.S. Climate Prediction Center in College Park, Maryland. The 48 contiguous U.S. states posted their warmest December in records going back 121 years, the National Centers for Environmental Information said Thursday.  

In the eastern U.S., 29 states had their warmest December temperatures, the center in Asheville, North Carolina, said.

‘Hard to Predict’

The U.S. flu season typically runs from October through May, and over the past few years has peaked relatively early. It’s still not clear if the current season is slow thanks to mild weather, or if the country is returning to a more traditional cycle when flu peaks in February or March, said Joseph Bresee, chief of epidemiology and prevention at the Centers for Disease Control and Prevention in Atlanta.

“We are a little later than in the past couple of years, but it’s too early to say if it will be a mild or a severe season,” Bresee said in an interview. “While the weather may have something to do with it, it’s always hard to predict when the flu will come.”

In the U.S., about 397,000 people were hospitalized for conditions related to the flu during the 2013-2014 season that peaked that December, according to a CDC estimate. Hospitals and insurers declined to comment on the current state of influenza in the U.S., since the issue is material to the fourth-quarter earnings that haven’t yet been released.

Small Uptick

In the last couple of weeks, there has been a small uptick in the number of people with influenza, Bresee said. During the week that ended on Christmas Day, 2.6 percent of people making outpatient visits had influenza symptoms, slightly above the annual baseline level. Deaths attributed to pneumonia or the flu remain below epidemic levels, CDC data show.

Data from Athenahealth Inc., which tracks U.S. health-care claims, show that influenza had yet to accelerate nationwide as of Jan. 2, though there were some signs of activity in pediatricians’ offices in the Northeast.

Investors often look at what happens with the flu in Australia as a bellwether for the U.S., Joshua Raskin, an analyst at Barclays Plc, said in a note to clients. At the season’s peak, 19 percent of doctors visits there included some mention of flu-like illness, the highest level in five years. 

Yet there are reasons to think this year’s U.S. flu season won’t mirror Australia’s. The “B” strain of the virus that dominated down under isn’t having the same effect in the U.S., where the H1N1 strain prevails, said Ian Mackay, an associate professor of virology at the University of Queensland, Australia.

More Effective

Scientists develop a new vaccine each year based on what strains of the virus are circulating and predictions on how they may mutate, with varying degrees of success. The small amount of virus found so far in the U.S., and the higher levels overseas, look very much like what was used to build the vaccine, Bresee said. That typically means the vaccine is more effective, he said. There is still time for those who haven’t get been vaccinated to do so.

“Influenza demands nimble and sometimes innovative approaches to keep up with it,” Mackay said. “Thankfully, disease due to H1N1 can be preventable thanks to vaccination.”

Americans may also be helped by the more severe outbreaks in recent years, which helped build up immunity to some strains, said Richard Webby, a virologist at St. Jude Children’s Research Hospital in Memphis and director of the World Health Organization Collaborating Center for Studies on the Ecology of Influenza.

While there are still two or three months left when cases could escalate, Webby said, “certainly all the indications at this stage are that we’re not in for a big year.”

Michelle Fay Cortez and Zachary Tracer
with assistance from Brian K. Sullivan
Bloomberg News