Centene’s standing in the Medicare Advantage market may further deteriorate as the company anticipates losing its sole four-star quality rating, CEO Sarah London told investors Friday.
The insurer reported the greatest drop in star ratings among Medicare Advantage carriers last year after the Centers for Medicare and Medicaid resumed stringent reviews it had paused during the COVID-19 public health emergency. Insurers strive to achieve at least four out of five stars in order to qualify for the biggest bonuses, which they use to offer supplemental benefits and zero-premium plans.
During Centene’s investor day in December, the company said it anticipated that 20% of its members would be enrolled in four-star plans this year. At the insurer’s first-quarter earnings call in April, London said the insurer expected “minimal” progress on increasing its four-star plans. More recent information on Centene's member experience and clinical outcome scores led the company to disclose it expects to have no plans with a four- or five-staring rating this year.
"With several contracts close to the bubble, variability in cut points means we could end the cycle with no four-star contracts compared to our current single contract representing 2.7% of our members,” London said during the company’s second-quarter earnings call.
“While this is disappointing, we do expect to see meaningful movement in our three- and three-and-a-half-star plans," London said. The revised goal is to have 85% of Medicare Advantage members enrolled in 3 1/2-star plans by October 2025, she said.
Centene reported $1.1 billion in net income for the second quarter, or $1.92 earnings per share, up from a $172 million net loss during the same period last year. Revenue increased 4.7% to $37.6 billion as exchange and Medicaid enrollment grew. The company raised its full-year earnings guidance by 9 cents to at least $5.60 per share.
Like other insurers, Centene experienced a "little higher than planned” increase in outpatient surgeries among its 1.3 million Medicare Advantage enrollees, Chief Financial Officer Drew Asher said during the call.
The insurer priced for higher utilization and lower star ratings in its 2024 Medicare Advantage bids, London said. “We’ve been very focused as we construct our 2024 bids that there are less profitable—or less aligned—products, and that’s where we are aggressively pruning,” she said. “Not through divestiture, but more through the lens of rightsizing and realigning our Medicare book.”
The company had 28.4 million enrollees through the second quarter, with the majority in Medicaid plans. Centene is the largest Medicaid carrier with 16.1 million members in 30 states, a 4% membership increase from the year-ago quarter.
Centene has not experienced higher acuity among Medicaid beneficiaries as states carry out eligibility redeterminations. But the insurer anticipates redeterminations will negatively affect its risk pools next year, London said. Centene also expects Medicaid premium revenue will decline 8.3% to $77 billion next year compared to 2023, London said.
Last quarter, Centene reduced its 2024 profit guidance because of the potential impact of redeterminations on its member mix. The company anticipates losing approximately 2.4 million members, and $10 billion in premium revenue, once states finish removing ineligible beneficiaries from Medicaid.
“We now believe it is prudent to build in a more conservative view of the potential disconnects between rates and acuity that could manifest in some of our states in 2024,” London said.
Commercial enrollment rose 50.3% to 3.7 million, primarily due to exchange growth during special enrollment periods, Asher said. The insurer is interested in acquiring assets to strengthen its marketplace operations, London said.
Centene anticipates not recouping $314 million that financially struggling competitors owe in exchange risk-adjustment payments this year and has budgeted for the loss. “I hope to get every nickel of that $314 million, but we’re trying to be realistic and prudent,” Asher said. “We will fight for it because that’s shareholder money.”
