Profit and revenue at Centene Corp. rapidly ascended in the second quarter, a trend that has defined the St. Louis-based health insurer for the past two years.
Centene has become a powerhouse in the Medicaid managed-care market by consistently winning state contracts to provide health coverage to low-income people. The company's pending acquisition of Health Net has it primed for even larger growth as a government-backed payer.
Earlier this month, Centene said it was buying Woodland Hills, Calif.-based Health Net in a deal valued at $6.8 billion, including debt. The combined company would have about $37 billion in annual revenue. Medicaid would still be Centene's bread and butter, but Health Net would diversify membership more. Two-thirds of revenue would come from Medicaid. About 16% would be tied to commercial business and exchanges, and 8% would come from Medicare Advantage.
Centene executives did not reveal any other details Tuesday about the pending Health Net deal. It is expected to close in early 2016, pending regulatory and shareholder approval.
Centene's second-quarter net income increased 80% year over year to $88 million. Revenue jumped 37% to $5.5 billion—the sixth straight quarter in which the company has grown revenue by more than 30%. Centene benefited from new or expanded contracts in Florida, Illinois, Louisiana, Mississippi, Ohio and Texas, most of which involved Medicaid.
Insuring Medicaid patients is a low-margin business, as evidenced by Centene's 1.6% net profit margin. Medicaid members often are sicker and require more healthcare services. But Centene CEO Michael Neidorff told investors Tuesday that there is a “stable medical cost trend.” Centene's medical-loss ratio in the second quarter was 89.1%, almost the same as last year's second quarter.
That ratio bodes well for Centene's future. The CMS proposed a rule this past May that would require Medicaid managed-care plans to have a medical-loss ratio of at least 85%, which would easily put Centene's plans in compliance.
Centene had more than 4.6 million members as of June 30, a 38% increase from the same period a year ago. Roughly 72% of those members are on Medicaid, and 4% have bought coverage through the Affordable Care Act's insurance exchanges.