Growth In ACA Plans Keeps Medicaid Giant Centene From Worst Of Redeterminations Impact

Dive Brief:

• Centene on Friday became the latest health insurer to report elevated Medicaid spending due to a mismatch between patients’ health needs and the rates paid by Medicaid states.
• Still, the St. Louis-based insurer announced higher revenue and earnings in the second quarter than analysts expected. Centene’s topline of $39.8 billion was up 6% year over year while net income of $1.2 billion grew nearly 9%, mostly thanks to membership growth and a large risk adjustment payment in the Affordable Care Act marketplaces.
• Centene once again increased its full-year guidance for premium and service revenues on Friday, while reiterating its earnings outlook. However, the payer said medical costs should come in at the high end of its prior range as ongoing Medicaid eligibility checks continue to drive up spending.

Dive Insight:

States began rechecking their Medicaid members eligibility for the insurance last spring. Since then, millions of low-income Americans have been booted off Medicaid — many for procedural errors instead of actual ineligibility — drastically changing the makeup of insurers’ risk pools.

Individuals remaining on Medicaid are more likely to be sick and have higher health costs, leading insurers to cry foul that states aren’t commensurately updating their payment rates.

Centene — the largest Medicaid insurer in the U.S. — filed a securities document in May disclosing that Medicaid claims continued to come in higher than it previously expected. It’s potentially a major pressure for the insurer, given Medicaid makes up almost half of Centene’s 28.5 million members and accounts for almost two-thirds of its premium revenue.

Redeterminations did ding Centene’s second quarter results, though growth in other businesses — notably, Affordable Care Act plans — kept things from getting too bad, according to financial documents released Friday.

The payer reported a medical loss ratio, a marker of how much in premiums it spent on patient care, of 87.6%. That’s up from 87% same time last year because of higher Medicaid spending.

Other insurers with large Medicaid businesses that have reported earnings so far — Elevance, UnitedHealth and Molina — have all blamed a dogged disconnect between rates and acuity, though comments have been mixed as to other drivers of the headwind. Elevance, for example, said its Medicaid beneficiaries about to lose coverage were using more medical services than expected.

On Friday, Centene joined Molina in citing rates not keeping pace with membership changes as the basic problem in the quarter.

“While we are disappointed with the magnitude of the disconnect between Medicaid rates and acuity that we saw materialize in the quarter, our underlying analysis continues to suggest this is largely due to the mix shift of the population and is therefore a temporary and addressable dynamic,” CEO Sarah London told investors on a Friday morning call.

Centene’s Medicaid premium revenue shrunk 8% year over year in the quarter as the insurer continued to shed Medicaid members.

Centene ended the quarter with 13.1 million Medicaid members, down from 16.3 million at the end of March last year before redeterminations began.

That’s a larger loss than Centene expected, as a handful of states have been more aggressive in removing people from Medicaid than the payer forecast, according to CFO Drew Asher.

Centene continues to see a larger number of “rejoiners,” or people reconnecting to Medicaid after being removed from the coverage, Asher said. That’s a positive trend in the long-term, but at the moment is driving up medical costs because a large portion of those rejoiners are seeking care, according to the CFO.

Another factor driving up spending is a growing gap between when individuals reconnect to Medicaid and when states resume paying Centene for their coverage.

Previously, Centene saw no break in premiums for 70% or more of those rejoiners. Now, that figure is lower than 50%, Asher said.

“That’ll wash out over the next year, but that’s another dynamic that’s pushing on the reported [MLR],” Asher said.

Centene also joined its Medicaid managed care peers in promising investors its rates should improve in the back half of the year — while reminding any state regulators listening it would still like higher payments.

All but one of Centene’s 31 Medicaid states have bumped their rates, though “we’re still working on sufficiency,” Asher said.

In the second half of 2024, Centene expects its composite Medicaid rate to be 4% or higher, up from its original forecast of 2% to 2.5%. London termed the rate increases a “step in the right direction.”

Despite the Medicaid losses, gains in the ACA marketplaces continue to keep Centene’s membership relatively stable. It’s the fastest-growing segment of Centene’s business, with ACA members increasing more than one-third compared to the prior year quarter.

ACA payers have benefited from higher subsidies in the exchanges put in place during the COVID-19 pandemic to help more people afford health insurance. That led to a record 21.4 million people signing up for ACA plans this year, swelling the rolls of insurers offering coverage in the exchanges. That includes Centene, the largest marketplace carrier in the U.S. by enrollment.

Absent congressional action, those subsidies will expire in 2025.

During the call, London stumped for Washington to keep the financial assistance, calling it a “chassis” Centene can use to drive growth in 2025. Centene is also still focused on growing its ICHRA or Individual Coverage Health Reimbursement Arrangement plans, London said.

ICHRAs allow employers to give their workers a tax-free monthly allowance so they can shop for a health plan on their own, including through the individual ACA market. The plans are a “fertile organic hunting ground” for Centene as they continue to grow in popularity as an alternative to employer-sponsored coverage, London said.

Before releasing earnings, Centene announced it had entered into a definitive agreement to sell its management services subsidiary, Collaborative Health Systems, to Astrana Health, a company that helps providers join value-based arrangements. Financial terms of the deal, which is expected to close by the end of this year, were not disclosed.