First-quarter profit at Health Net edged slightly upward, but the effects of the Affordable Care Act on the health insurer's swelling membership and top line was perhaps more notable.
Health Net's Medicaid enrollment increased 31% in the first quarter of 2015 compared with the same period last year, totaling more than 1.7 million low-income Americans. That's more than half of the company's 3.2 million members. Health Net sells Medicaid managed-care plans in Arizona and California, both of which expanded Medicaid under the healthcare reform law to people making up to 138% of the poverty line.
Individual membership climbed 74% to 360,000. A vast majority of those policyholders purchased plans through Covered California, California's state-based health insurance exchange.
Executives said Medicaid expansion and exchanges have directly led to increased revenue, although the higher membership has not yet trickled down yet in the form of higher profits. Health Net's first-quarter revenue jumped 28% to $3.9 billion. Net income increased 4% to $30 million, equaling a 0.8% profit margin.
Profit likely would have been higher had it not been for Health Net's recent outsourcing contract with Cognizant, which led to $47.3 million in pre-tax expenses. Health Net and Cognizant agreed to a seven-year deal last year in which the technology firm will manage Health Net's back-end administrative functions.
Health Net's medical-loss ratio increased slightly in the first quarter of the year to 84.5%. Executives sought to quell investor fears by saying the higher medical costs were due to lower-than-average utilization in the first quarter last year—not increased visits to doctor offices and hospitals.
“We saw no evidence of higher-than-expected utilization,” James Woys, Health Net's chief financial officer, said in a news release.
Health Net joined the ranks of most other health insurance companies and updated its earnings forecast for the rest of the year. The Woodland Hills, Calif.-based insurer boosted full-year earnings expectations by a dime to $3.35 per share.