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This is Jacob Everson with the Becker's Payer

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Issues podcast.

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Here's your biweekly industry news update for February

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6.

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Moody's has revised its outlook for the health

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insurance sector to negative, citing continually high medical

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costs that are expected to constrain earnings growth

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in 2025.

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In a January

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reports, analysts

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discussed the significant challenges insurers are facing across

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their Medicare Advantage, Medicaid, and commercial businesses.

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Rising medical costs driven by inflation,

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prescription drug spending,

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and increased utilization of behavioral health services are

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outpacing reimbursement rates and premium increases.

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Proposed legislation targeting PBMs and the potential expiration

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of ACA premium subsidies in 2026

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could also further increase pressures.

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Amid these change challenges, Moody's has assigned a

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positive outlook to only one major insurer, Hellevance

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Health, reflecting its strong market position and operational

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performance.

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In contrast, Humana and Healthcare Service Corporation have

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been given negative outlooks. Humana's negative outlook is

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driven by its heavy reliance on Medicare Advantage

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and HCSC, which is the parent company of

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five Blue Cross plans. They were given a

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negative outlook because of their exposure to Medicaid

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redeterminations

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and competitive pressures within the core commercial business.

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Medical costs are rising at their fastest rate

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in thirteen years, with commercial group spending projected

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to grow by 8% in 2025.

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Individual market spend is expected to increase by

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seven and a half percent, and MA spending

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is forecast to rise by

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between somewhere of 57%.

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Competitive and regulatory constraints are also limiting the

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insurer's ability to offset

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rising costs through premium increases.

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Medicare Advantage specifically accounted for about 20% of

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industry earnings in 2023,

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Lower reimbursement rates from CMS and regulatory limits

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on benefit reductions

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have led to higher medical loss ratios and

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lower earnings.

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The Inflation Reduction Act has also exacerbated costs

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by eliminating the 5% coinsurance requirements for individuals

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in the catastrophic phase of prescription drug plans,

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which has led to increased utilization

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of high cost medications.

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And finally, with Medicaid, enrollment did decline in

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2024 due to redeterminations,

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but the ACA market saw record growth during

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the last enrollment period. So Moody's expects overall

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enrollment across markets to improve in 2025

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with Medicaid stabilizing and MA growth remaining steady.

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The potential expiration, though, of ACA subsidies could

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lead, though, to significant enrollment declines.

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And then there's PBMs facing bipartisan scrutiny.

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A proposed federal legislation could require insurers to

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divest their pharmacy businesses, which would also potentially

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weaken earnings.

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On the federal level, members of Elon Musk's

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Department of Government Efficiency have been granted access

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to the payment and contracting systems at CMS.

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Department representatives have been on-site at CMS's offices

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this week, which is the week of February

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5, examining,

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spending

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data for potential fraud or waste, and reviewing

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the agency's

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organization and staffing.

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Doge representatives

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had not yet been granted access to databases

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that include

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personal health information of Medicaid and Medicare beneficiaries.

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The Doge representatives

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have only

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read have read only access, meaning they cannot

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change any material viewed. President Donald Trump created

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the department referred to as DOGE by officials

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in November to cut wasteful spending and reduce

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operational inefficiencies.

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He appointed Elon Musk, who, of course, is

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the CEO of Tesla, SpaceX, and Twitter to

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lead the initiative.

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Doge aims to cut federal spending by $1,000,000,000,000

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with Medicaid emerging as a likely target.

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On the topic of Medicaid, the Centene is

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declaring the redeterminations

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era over. On February 4, CEO Sarah London

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told investors

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the company is anticipating a more stable period

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for Medicaid enrollment this year. She said as

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we move through 2025,

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we're looking forward to turning the page on

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the redetermination

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era, returning to overall Medicaid stability and working

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closely with state partners on innovations to deliver

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health care and better health to communities.

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In 2023 and 2024,

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of course, states determine the eligibility of Medicaid

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beneficiaries for the first time since 2020,

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which was barred,

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in terms of removing beneficiaries during the COVID

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public health emergency.

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Prior authorization reform is remaining a major advocacy

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priority for provider trade groups this year, and

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several state lawmakers have also introduced legislation

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to bring changes to the process.

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The

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said the commercial insurers should be held accountable

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for ensuring appropriate access

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to care, including by reducing the excessive use

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of prior auth. The group is also seeking

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to reduce administrative burdens that take clinicians away

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from the bedside

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and contribute to burnout.

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The Medical Group Management Association is seeking to

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eliminate or significantly reduce the volume of prior

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authorization and other prerequisites for coverage.

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The AMA and the Federation of American Hospitals

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are also both urging Congress to pass the

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improving seniors timely access to care act, which

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aims to reform the Medicare Advantage

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specific

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prior authorization

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process. That would establish an electronic prior authorization

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process for MA plans that includes a standardization

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for transactions and clinical attachments

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and and some more transparency around how those

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prior auth requirements are put to use.

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At the state level, lawmakers in Indiana and

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Rhode Island have introduced prior authorization reform legislation

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just this year alone.

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UnitedHealth Group is raising concerns with the SEC

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after hedge fund manager Bill Ackman suggested that

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the company's profitability could be, quote, massively overstated.

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He wrote on x, formerly known as Twitter,

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saying, if I still shorted stocks, I would

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short UnitedHealthcare.

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He suggested that the SEC conduct a thorough

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investigation of the company and said, quote, I

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would not be surprised that the company's profitability

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is massively overstated

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due to its denial of medically necessary procedures

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and patient care.

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He later deleted that post. Mister Ackman is

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a billionaire and the founder of hedge fund,

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Pershing Square. He has a million and a

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half followers on x. A spokesperson for UnitedHealth

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told Bloomberg that the company reached out to

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the SEC about those comments.

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Shares of the company fell 4.3%

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on February 5. United said, quote, health insurance

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has long been subject to significant regulatory oversight

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and earnings caps. And he claims that health

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insurers, which typically have low to mid single

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digit margins, can somehow over earn or grossly

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uninformed about the structure and strong regulatory oversight

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of the sector.

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And finally, a federal court in Tennessee has

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upheld a jury's decision in favor of a

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former BCBS of Tennessee employee who filed a

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religious discrimination lawsuit after she was terminated for

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refusing to comply with the company's COVID nineteen

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vaccination mandate.

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The judge issued a final ruling on January

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31 confirming that Blue Cross must pay the

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plaintiff a total of more than $500,000

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in damages following a jury's original verdict last

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June.

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A jury had initially awarded the plaintiff

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over $680,000,

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but it wasn't in accordance with federal rules

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for employers with more than 500 employees,

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and so the punitive damages were reduced to

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300,000.

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The jury had originally found the Blue Cross

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had not met its legal obligation to offer

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reasonable accommodations

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under the Civil Rights Act. It's also part

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of a broader litigation against BCBS

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of Tennessee with a class action lawsuit filed

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by a group of former employees who were

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also terminated for refusing the vaccine on religious

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grounds. The company terminated 41 employees who had

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requested

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religious exemptions,

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for a mandate that affected 900

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customer facing roles.

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It's also part of a larger trend because

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back in November, a federal jury ordered Blue

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Cross Blue Shield of Michigan to pay nearly

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$13,000,000

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in damages to a former employee who said

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she was wrongfully terminated

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for refusing to receive the COVID vaccine back

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during the pandemic.

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