Centene rides Obamacare to higher profit and revenue in third quarter

While other health insurers lose money on the Affordable Care Act insurance exchanges or ditch them altogether, Centene Corp. remains the exception. The St. Louis-based insurer recorded a 9.7% increase in revenue during the third quarter of 2017 compared to last year, buoyed by membership growth on the individual insurance marketplace.

Centene's membership is primarily made up of Medicaid recipients, but the health insurer also dominates the ACA marketplace. In the last year, Centene has nearly doubled its exchange membership to 1,024,000 as of the end of September from 582,600 at the same time a year ago. Its third-quarter revenue was $11.9 billion.

Centene's experience serving the low-income, high-risk Medicaid population equipped it to succeed in the marketplace, where most enrollees also have low incomes and are high users of healthcare.

While most health insurers trimmed down their 2018 marketplace footprints, Centene filed to sell exchange plans in three new states—Kansas, Missouri and Nevada—and expand its presence in six states where it already sold plans.

"Though headline noise may linger, we remain focused on business as usual, as evidenced by Centene's momentum, strong results and outlook," the insurer's CEO, Michael Neidorff, said in a statement.

Open enrollment for the individual health insurance marketplace kicks off Nov. 1. Leading up to open enrollment, the Trump administration has made changes that health reform experts expect will make it harder for people to sign up for coverage and weaken the exchanges.

For instance, the Trump administration slashed funding for ACA marketing and outreach, as well as funding for the assisters who help people enroll. Trump also said he will no longer make cost-sharing reduction payments to insurers. The CSRs help lower the out-of-pocket healthcare costs for low-income exchange members.

But during a conference call Tuesday to discuss third-quarter earnings, Neidorff said Centene has taken action to protect itself against the disruptions.

"We fully recognize the possibility that cost-sharing reductions, CSRs, might not continue to be funded, and as such planned accordingly," he said. "We filed 2018 rates in all our exchange markets assuming there would be no CSR payments, and they have now been approved in all markets."

Neidorff noted that defunding the CSRs, which cost the federal government $7 billion, would ultimately lead to increased government spending. Centene has also bumped up marketplace marketing and outreach to make up for the pullback in federal spending.

Meanwhile, Centene is also growing its core Medicaid business. The insurer announced in September that it is acquiring New York-based Fidelis Care for $3.75 billion and expects to close that deal in early 2018. Fidelis Care is a not-for-profit plan serving more than 1.6 million members, mostly in Medicaid.

Centene's Medicare plans took a hit this month when the CMS lowered its star rating from four stars to 3½ for 2018. That will affect bonus payments it receives for Medicare Advantage members in 2019. Plans that earn at least four stars receive a 5% boost to their monthly per-member payments from Medicare, while those with lower scores receive nothing extra. Centene said it will appeal the rating.

Centene's membership totaled 12.3 million at the end of September, up 7.7% over the same time last year. The insurer grew its net income by 39.5% to $205 million in the third quarter.

Its health benefits ratio, or the percentage of premium revenue spent on medical care, was 88% for the third quarter, compared to 87% at the same time a year ago. The company said the increase is the result of an increase in high risk members, lower rates in California, and new or expanded health plans, which initially have a higher benefits ratio.