Rising Medicaid enrollment boosts Centene's profit, revenue

Centene Corp. registered sizable top- and bottom-line growth in the third quarter. The managed-care company is benefiting directly from the Patient Protection and Affordable Care Act, and executives believe profitability will remain high through the rest of this year and beyond.

Membership exploded again at St. Louis-based Centene. That increase drove much of the increase in revenue and earnings. The health insurer said as of Sept. 30, it covered more than 3.7 million people, a 42% increase from the same period a year ago.

Medicaid is the largest portion of Centene's business. Centene's Medicaid population was almost 2.6 million people, as of Sept. 30, up 32% from last year. Under the ACA, income eligibility for Medicaid expanded this year to 138% of the federal poverty level. Centene covers 193,100 Medicaid expansion lives in California, Illinois, Massachusetts, New Hampshire, Ohio and Washington. That's up significantly from the first quarter of this year, when Centene's Medicaid expansion population was 99,700.

“Longer term, we continue to view this as a growth area,” Centene CEO Michael Neidorff said on a call with investors Tuesday morning. Neidorff echoed the same sentiment in the second quarter.

The insurer is prepping for more traditional Medicaid business, as well. This month, Centene received word that it will become the managed-care organization for Louisiana Medicaid beneficiaries. Neidorff said it would cover 320,000 to 350,000 people, which would double its annual revenue in the state. The Louisiana contract is expected to start early next year.

Overall, Centene's net profit rose 67% in the quarter, totaling $82.6 million. Revenue soared 56% to $4.35 billion. The large gains prompted management to again raise its outlook for the rest of the year. Revenue is now expected to range from $15.3 billion to $15.8 billion, and diluted earnings per share will land between $4.35 and $4.50.

Despite the financial gains, Centene executives said the company experienced a higher medical-loss ratio in the quarter. An insurer's MLR relates to how much premium revenue was spent on medical care. Centene's MLR was 89.7% in the third quarter, compared with 87.8% in the same period in 2013. Centene CFO Bill Scheffel attributed the higher MLR to sicker members requiring more intensive care, not to increased utilization of healthcare services.

Centene's stock was trading at $84.59 in morning trade, an all-time high. Shares are up almost 44% for the year.

Follow Bob Herman on Twitter: @MHbherman