Centene expects to lose money this year in its Medicare Advantage business and from Medicaid redeterminations and, as a result, cut it earnings guidance.
In reporting its first-quarter earnings, the insurer said its earnings will reach at least $6.60 per share in 2024, lowering its profit floor from the previous estimate of $7.15 per share. Centene said its net income increased 33% year-over-year, to $1.13 billion, or $2.11 earnings per share, on revenues of $38.8 billion, driven by increased exchange revenue and lower medical expenses.
The insurer said it will lose money on Medicare Advantage this year after the Centers for Medicare and Medicaid Services lowered the benchmark rates insurers will receive and changed the star ratings program. CMS increased the base payment from its proposed rule, but the benchmark remains lower than historical levels.
“It’s still an inadequate rate relative to trend and some of the costs will accrue to our provider partners and some we’ll work into bids,” Chief Financial Officer Drew Asher said during Tuesday's earnings call.
In its Medicare Advantage business, Centene reported a $200 million premium deficiency charge, which means it expects to lose that amount on business it has booked. Most of the funds, or approximately $150 million, will be used for investments in provider enablement and consumer digital tools, systems infrastructure and growing its internal broker teams, CEO Sarah London said during the call. Centene is focused on rightsizing its Medicare Advantage segment after pursuing a “growth at all costs pricing mentality” during open enrollment in 2021 and 2022, she said.
“Long-term, we’re slowing down to speed up,” London said.
During the call, executives also discussed Medicaid redeterminations, marketplace growth, investment priorities and more. Here’s what to know.
Medicare Advantage 4-star rated plans flat
Centene has made minimal progress in reaching four-star ratings for its Medicare Advantage plans, London said. CMS awards an average 5% bonus to Medicare Advantage plans that achieve at least four out of five stars in the quality ratings program. Centene will focus on getting the majority of its members in 3.5-star rated plans after experiencing a big drop in 2023.
“We expect minimal four-star progression year-over-year,” London said.
Changes in the company’s call center and a shift away from web-based brokers led to a 20% reduction in voluntary disenrollments and a 40% drop in member complaints, London said. The company will focus on retaining members who are dually eligible for Medicare and Medicaid and believes regulators adding a health equity index to the program will boost its payments. Centene’s Medicare Advantage membership declined 7.4% to 1.3 million enrollees.
States delays on redeterminations
Several states decided to delay rechecking members’ Medicaid eligibility by a month as they reflect on the scope of the task ahead, Asher said. States paused redeterminations in exchange for increased federal funding during the COVID-19 pandemic. Congress authorized states to restart eligibility checks April 1.
The insurer expects most states to increase their Medicaid payment rates as acuity in the population shifts during redeterminations, Asher said. Centene is the largest Medicaid insurer with 16.3 members, up nearly 6.9% year-over-year.
Watching for adverse selection in marketplace
The company is the largest marketplace insurer and increased its exchange membership 52.3% year-over-year to nearly 3.1 million members, reflecting strong results from the annual open enrollment period that ended Jan. 15. The company’s Medicaid and exchange footprint overlaps in 25 states and the company expects to continue growing its exchange enrollees.
The insurer does not expect a flood of sick, costly members who lose Medicaid coverage to sign up for its marketplace policies, Asher said. President Joe Biden enacted a special enrollment period in 2021 at the height of the COVID-19 pandemic and several insurers, including Centene, reported an influx of members with more complicated medical conditions.
“There was a lot of pent-up demand, and a different acuity profile,” Asher said.
No increases in acuity
Utilization has largely returned to pre-pandemic levels, with preventative screenings and cancer diagnoses returning to normal, Asher said. Inpatient claims declined from last year's first quarter and Medicare Advantage and Medicare supplement customers reported fewer medical expenses, he said.
Insurers justified premium increases during the heights of the COVID-19 pandemic by arguing that individuals deferring care would need more expensive treatments down the line.
“We keep looking for signs of acuity increasing and aren’t finding any,” Asher said.
Like UnitedHealth and Elevance Health, the company’s medical claims liability increased. Increases in state pass-through payments due drove up the company’s estimate of its outstanding medical claims 4.5% year-over-year to $17.5 billion, Asher said.
