Centene Echoes Humana’s Concerns About Proposed MA Rate Drop

Dive Brief:

• Centene has become the second major health insurer to warn investors of an impending funding decrease in Medicare Advantage — if regulators finalize 2025 rates as proposed.
• New payment parameters released by the CMS last week would cause Centene’s MA rate to fall 1.3%, CFO Drew Asher said during a Tuesday morning call discussing the payer’s fourth-quarter earnings results.
• However, this dip is before Centene risk scores its enrollees, a process which should result in an overall increase in MA reimbursement next year, Asher said. Humana disclosed similar concerns in a filing with the Securities and Exchange Commission on Monday.

Dive Insight:

Analysts on Tuesday peppered Centene executives with a string of queries about MA, a sector facing notable turbulence from shifting regulations and elevated medical costs. The bombardment prompted an attempt from Asher to redirect the line of questioning to Centene’s other business lines.

“Isn’t it interesting — we’re spending so much time on 12% of our revenue,” Asher said. “Important lever, but we actually have some pretty good other businesses.”

Analysts said they were looking to reconcile differing narratives in MA. Managed care companies that have reported fourth-quarter earnings so far — UnitedHealth, Humana, Cigna and Elevance — have reported a mixed bag of Medicare utilization trends.

UnitedHealth and Humana, which together hold almost half of total MA market share, say that seniors are continuing to seek outpatient care in droves, including procedures like orthopedic surgeries and seasonal needs like vaccinations for the flu or respiratory virus RSV. Both also reported higher inpatient utilization, though UnitedHealth blamed expensive COVID-19 admissions while Humana said it was seeing more short stays in hospitals across the board.

Though outpatient care has remained elevated, Centene didn’t see an increase in inpatient care in the fourth quarter, according to management.

The only unexpected element in MA was higher spend on influenza-like illnesses, but the insurer is confident it’s factored in ongoing medical trends into its plan bids for 2024, Asher said.

Overall, Centene recorded a medical loss ratio of 87.7% in 2023, the same as in 2022. Lower medical costs in its Affordable Care Act marketplace plans were offset by a $250 million premium deficiency reserve recorded in the fourth quarter.

A premium deficiency reserve is how much an insurer expects they might need if premiums collected aren’t sufficient to meet future claims expenses.

Centene booked that $250 million reserve to account for a potential MA cost increase in 2024. The reserve gives Centene “another bite at the apple” to reevaluate medical trends and, in the chance costs continue to rise, will provide a financial cushion, Asher said.

Despite expressing confidence in Centene’s 2024 bids, preliminary rates released by the CMS for 2025 are “insufficient,” CEO Sarah London told investors on the call.

Centene is focusing on margin expansion in MA, not growing its footprint, so if regulators finalize the unfavorable rates “we’ll just adjust the bids accordingly,” Asher said. “The products may be a little less attractive for seniors from an industry standpoint if we don’t make a lot of progress on the final rates.”

To Asher’s point, Medicare makes up a relatively small chunk of Centene’s annual revenue. The lion’s share of its premiums are brought in from Medicaid, another government program that’s facing ongoing volatility as states continue to recheck beneficiaries’ eligibility. Centene is the largest Medicaid managed care organization in the U.S., and contracts with 31 states to offer the coverage.

As of the end of 2023, 80% of Centene’s members had their eligibility redetermined. Centene ended the year with 14.5 million Medicaid beneficiaries — down 1.5 million people since the end of 2022.

In the fourth quarter, the payer’s Medicaid premiums were down slightly year over year, but still up in 2023 overall compared to 2022.

Despite the loss of members, Centene continues to notch contract wins. Last month, Centene resigned a Medicaid contract with New Hampshire to provide physical and behavioral health, along with pharmacy services, in the state. And, in December, the insurer received a Medicaid long-term care contract in Arizona.

Even as Medicaid membership slid, Centene’s marketplace enrollment was up 1.8 million people — a whopping 88% increase compared to 2022. Commercial revenue jumped 68% in the fourth quarter and 43% in the full year.

The ACA exchanges are a key growth market for the payer, and were a major source of discussion during Centene’s investor day in December.

Overall, Centene ended the year with 27.5 million members.

The insurer beat Wall Street expectations for 2023 on revenue of $154 billion, up almost 7% year over year, but missed earnings forecasts slightly. Centene brought in profit of $2.7 billion in 2023, more than double its profit in 2022.

Centene increased its 2024 premium and services revenue guidance in light of stronger than expected marketplace enrollment, and reiterated its earnings guidance for this year.