Medicare, exchanges highlight Centene's first quarter

Favorable performances in Medicare and the health insurance exchanges during the first quarter has Centene envisioning a more lucrative year than expected despite Medicaid woes, the company announced Friday.

Centene forecasts $164 billion-$166 billion in revenue for 2025, a $6 billion increase from prior projections. Exchange sales will make up $5 billion of that and Medicare $1 billion, executives said during a call with investor analysts on the company's first-quarter earnings.

Related: Medicaid, exchange costs ding Molina Healthcare

That's despite a 1.7% decrease in total membership to 27.9 million. That diminishment was partially deliberate, however, as Centene sought to reduce its Medicare Advantage exposure in unappealing markets. Medicare Advantage membership declined 9% to 1 million, although Centene aimed to bring it down to 900,000.

Medicare Part D enrollment grew 22.2% to 7.8 million, more than expected. Centene increased its premium deficiency reserve to $270 million in the first quarter to reflect high utilization of specialty drugs for conditions such as asthma and eczema among Part D members who are not eligible for low-income subsidies, Chief Financial Drew Asher said on the call.

Net income rose 12.7% to $1.3 billion, or $2.63 per share, and revenue grew 15.4% to $46.6 billion during the first quarter. The insurer reported an 87.5% medical loss ratio, which measures the portion of premiums spent on care. Centene now anticipates an 88.9%-89.5% medical loss ratio for the year, higher than previously projected. The company stood by its full-year earnings guidance of at least $7.25 per share.

Centene cited seasonal influenza costs in Medicaid, high utilization of specialty drugs in Medicare and increased enrollment in the exchanges as the drivers of elevated medical spending.

Medicaid membership fell 2.5% to 13 million. Centene, like other Medicaid managed care contractors, has struggled with excess Medicaid costs and reported a 93.6% medical loss ratio for this line of business, compared with 90.9% in the year-ago period.

Flu costs for Medicaid enrollees came to $130 million in the first quarter. "This is the most acute flu season we’ve seen in 15 years,” CEO Sarah London said on the call.

Exchange membership jumped 29% to 6.1 million. Centene sees trouble over the horizon if Congress and President Donald Trump do not extend the enhanced subsidies due to expire at the end of the year, Asher said.

In addition, a Centers for Medicare and Medicaid Services proposal to end the special enrollment period for people earning above 150% of the federal poverty line, which is $15,650 for an individual, would force premium hikes, Asher said.

“Looking at actuarial studies, those may cause high single-digit price increases, and that’s before any baseline trend adjustment and potential tariffs,” Asher said.

Centene’s stock closed at $57.69 on the New York Stock Exchange on Friday, down 6.3% from Thursday’s close.