Dive Brief:
- Centene raised its 2023 outlook on Tuesday after the health insurer handily beat Wall Street expectations for earnings and revenue in its third quarter, helped by lower medical costs.
- Centene reported a medical loss ratio — a marker of spending on patient care — of 87%, down from the year prior. On a call with investors Tuesday morning, executives chalked the lower medical spending up to significantly more members in Affordable Care Act marketplace plans, who generally require less expensive care than members in Medicaid and Medicare. Centene grew marketplace membership 76% year over year.
- The ongoing effect of Medicaid redeterminations — now almost halfway complete — on membership numbers and care acuity continues to track to Centene’s expectations, CEO Sarah London said on the call. Centene still expects to lose roughly two million members once redeterminations are complete.
Dive Insight:
Overall, Centene brought in revenue of $38 billion in the third quarter, up 6% year over year. The St. Louis insurer’s profit of $469 million was down 36% year over year, as falling investment income chipped away at higher operating profits.
Centene is the largest Medicaid managed care organization in the U.S., so is significantly exposed to the effects of Medicaid redeterminations. States could begin removing Medicaid beneficiaries from their rolls as early as April after resuming eligibility checks for the safety-net health insurance program.
Centene, which contracts with 31 states to offer Medicaid coverage, has lost 1.1 million Medicaid members over redeterminations to date, CFO Drew Asher said on the call.
Earlier this year, the payer lowered its 2024 earnings guidance due to expectations that Medicaid redeterminations will increase spending and lower premium revenue next year. However, Centene’s states are making concessions to rates to reflect shifting member acuity, a development executives said was reason for optimism.
Thirteen of 14 states that provide rate updates between July and October each year have adjusted rates to match acuity. Meanwhile, seven states that will update rates in January 2024 have given the payer draft updates that include acuity adjustments, and Centene expects the remaining states will follow suit, according to Asher.
“[I] feel pretty good about the matching of rates so far, with a couple of exceptions,” Asher said.
In addition, a higher percentage of members are rejoining Medicaid after being kicked off, due to factors like a 90-day grace period for reapplication in most states and federal regulators cracking down on overly aggressive removals, according to London.
Centene’s percentage of “rejoiners” has risen to around 25%, and the majority of returning members have had no break in coverage.
“We are pulling share from other players” as well, but are focusing on recaptures, London said.
Centene is also facing earnings pressure from the effect of Medicare Advantage star ratings, a metric of plan quality meant to help seniors shop between plans that also qualifies plans for lucrative bonuses.
Centene received some of the lowest scores among major health insurers in star ratings released earlier this month. However, the insurer did claw back some ground after losing a whole star the year prior.
Now, 87% of Centene’s MA lives are in contracts with 3 stars or above, up from 53% previously.
To better its stars, London said the payer will continue to focus on priorities like building out its provider network, moving more lives into higher-risk arrangements and improving customer service as it repositions MA plans to serve complex individuals.
“While we delivered stars results in line with our Q2 expectations, these results certainly do not reflect the ambitions of our company,” London said.
Amid headwinds like redeterminations and stars, Centene laid off 2,000 employees earlier this year and divested businesses including Circle Health, an independent hospital operator in the UK. London said Centene continues to evaluate businesses for potential sale and that work is “close to finish[ed].”
