Centene, which just closed on its $6 billion takeover of Health Net last month, did not disclose its profit margin on the ACA exchange plans, but it is “achieving margins at the higher end of our targeted range,” Centene CEO Michael Neidorff said on a call with investors and analysts Tuesday. UnitedHealth, by comparison, estimates ACA losses north of $1 billion for 2015 and 2016.
Centene ended the first quarter with 683,000 exchange members in 15 states, many of which were gained through the Health Net transaction. That number is projected to fall to 550,000 “due to normal attrition,” Neidorff said.
Centene offered low-premium, high-deductible plans in many areas, which appealed to the very price-sensitive consumers shopping for the ACA's individual plans. About 90% of Centene's marketplace enrollees were eligible for premium subsidies, and many rotate in and out of its core business of Medicaid.
Although UnitedHealth is leaving many individual-market states, Neidorff does not expect Centene will capture a lot of those enrollees who will look for a new health plan. He said UnitedHealth's ACA population bought higher-cost gold and platinum plans that come with broader networks and richer coverage.
“They're in a different market than we are, from what I can see,” Neidorff said. “To the extent that they have a membership that would fit within our model, sure we take them on. But I'm not anticipating a large gain from that either just because of the differences.”
Medicaid expansion also has funneled thousands of new members to Centene. The company covered 985,000 Medicaid expansion members in nine states, as of March 31, again with many coming from Health Net. The ACA expanded Medicaid eligibility to those making up to 138% of the federal poverty level, but 19 states still have refused to do so, citing political and financial concerns.
Centene posted a $17 million loss in the first quarter this year, but it mostly was expected as the St. Louis-based Medicaid insurer absorbs the operations of Health Net, a Medicare, Medicaid, Tricare and ACA marketplace insurer with most of its business in California and other states in the West. Centene recorded $189 million in expenses tied to its Health Net acquisition.
“There were many moving parts when combining the two companies,” Neidorff said.
Total revenue fell just shy of $7 billion, and revenue is expected to approach $40 billion by year-end. Centene had more than 11.5 million members by the end of the first quarter.
Centene's medical-loss ratio hit 88.7% in the first quarter compared with 89.8% in the same period of 2015. A new CMS rule posted Monday officially requires an 85% MLR for all Medicaid managed-care contractors, a threshold that Centene usually meets.
An unknown and potentially sizable risk for Centene looms in Kentucky. Centene ended its Medicaid managed-care contract with Kentucky in 2013, a year before the contract was set to expire. Centene contends it was within its right to terminate the contract early, but Kentucky Medicaid officials said the move explicitly broke the contract's legal terms.
Kentucky argued Centene owes up to $174 million in state and federal expenses for breaking the contract, an amount that would be enough to wipe away half of Centene's profit from 2015. Centene lost an appeal last year, but the legal battle is continuing.