Centene Looks Beyond Medicaid Redeterminations

Centene laid out a glide path to business as usual in the first quarter as Medicaid redeterminations wind down, though a potential mismatch between payment rates and member acuity in the safety-net program could complicate touchdown.

Redeterminations, where states recheck beneficiaries’ eligibility for Medicaid, have been a major source of turbulence for Centene, which is the largest Medicaid insurer in the U.S. Centene has lost 3 million Medicaid members since redeterminations began last spring, according to new financial documents.

However, the process is roughly 90% complete, executives said on a call Friday morning discussing the company’s first quarter.

Yet Medicaid spending was higher than expected in the quarter due to a mismatch in the rates that Centene’s 31 Medicaid states pay the insurer for providing care for their members and the cost of providing that care.

The size of the disconnect between rates and acuity as states kick Medicaid members off the program, changing the makeup of insurers’ covered populations, has been a key concern for payers during redeterminations.

Most states have retroactively adjusted rates to reflect that shifting member mix, which has been mitigating the worst losses from redeterminations — though, Centene is still waiting on a few.

“2024 represents an important year for blocking and tackling through acuity shifts and corresponding rate discussions with our state partners,” Centene CEO Sarah London said during the call. But “as we move through the remainder of the year, we expect these discussions to increasingly represent the regular back-and-forth dialogue we maintain with our state partners in the normal course of managing around each individual Medicaid program we serve.”

Concerns that redeterminations could increase spending and lower premium revenue led the St Louis-based payer to lower its 2024 earnings guidance earlier last year. However, Centene has since revised it upward.

And, on Friday, the payer once again increased 2024 guidance for premium and service revenues, adding another $1 billion in expected premiums from Medicaid.

The ceiling could be higher, according to analysts.

“We are pleased” to see Centene raise its outlook but “suspect there could be room for further upside to numbers if Medicaid redetermination impacts develop more favorably than anticipated,” J.P. Morgan analyst Calvin Sternick wrote in a note on the results.

One factor is membership retention. Centene has seen its Medicaid rolls shrink significantly over the past year during redeterminations and expects some further attrition in the second and third quarters, according to CFO Drew Asher.

However, gains in the marketplaces set up by the Affordable Care Act have caused Centene’s membership to stay relatively stable compared to the first quarter of 2023.

Commercial members in the ACA exchanges are the fastest-growing segment of Centene’s business, increasing 41% year over year.

Centene has also inked a number of new Medicaid contracts with states that should bolster its membership. Along with recent contract wins in Arizona and New Hampshire, earlier this month Centene reprocured contracts with Michigan and, importantly, Florida, which is a huge Medicaid market for the insurer.

However, Centene was not awarded a Medicaid contract in Texas. The payer is challenging the state’s decision, London said.

Medicare Advantage; Change cyberattack

Higher than expected Medicaid costs drove Centene’s medical loss ratio, a marker of spending on patient care, up to 87.1% in the quarter.

That’s up slightly from 87% same time last year, but down from the 87.7% MLR notched in 2023 as a whole.

Asher said Centene is still seeing elevated utilization of medical care among seniors in Medicare Advantage, a trend that started last year and has dragged down payers’ earnings. Medicare inpatient authorizations were particularly higher than expected early in the first quarter, according to the CFO.

Centene leadership also joined in with the chorus of insurance executives bashing MA rates for 2025 that the CMS finalized earlier this quarter. The rates are “insufficient,” London said, though she and Asher noted Centene is less worried about revenue growth in MA and more focused on aligning coverage for individuals dually eligible for both Medicare and Medicaid.

Insurers have also been dealing with the impact of the Change Healthcare cyberattack on their operations in the first quarter. The attack on the major claims clearinghouse in February has thrown provider payments into disarray, while muddying insurers’ visibility into claims.

As Change’s parent company, UnitedHealth has been particularly affected, but insurers Elevance and Molina also told investors they were reserving more money to ensure they could cover future payments.

As for Centene, “at the highest point we were missing a mid-teens percentage of our claims, but by the time we closed the quarter the impact was very modest,” London said.

Overall, Centene beat Wall Street expectations for earnings and revenue in the first quarter, reporting a topline of $40.4 billion, up 4% year over year. Net income of $1.2 billion was roughly flat year over year.