Medicaid managed care insurer Centene Corp. escaped the first quarter of 2020 without much impact of the COVID-19 pandemic on its bottom line. While that could change over the course of the year, Centene executives suggested the insurer could ultimately benefit from the nation's increasing unemployment rates and lower use of healthcare services.
During a call with investment analysts on Tuesday, Centene CEO Michael Neidorff said that while he expects the company's results "to be choppy from quarter to quarter," he believes it will still reach the full-year earnings expectations that it set in early March. The company also expects to bring in higher revenue in 2020 than previously projected.
"Our earnings trajectory remains consistent … That said, there will be some variability when it comes to how we get there," Neidorff said.
In the first quarter of 2020, Centene saw few claims for tests and treatment related to the COVID-19 pandemic — so few that executives declined to estimate the average cost of a treatment for the respiratory disease for a Medicaid patient. The lack of claims is likely due to the fact that the virus didn't begin its assault on the U.S. population until late March, which is the end of health insurers' first financial quarter.
That's true even in New York, the state hardest hit by the coronavirus. While Centene has seen higher COVID-19 costs in the state compared with other areas, the amount of "paid dollars associated with COVID has not been substantial," said Jeff Schwaneke, Centene's chief financial officer.
Centene did experience higher COVID-19 costs in its international operations, primarily in Spain.
Meanwhile, Centene is benefiting from the reduced use of non-urgent healthcare services. Schwaneke said the company has seen a "significant drop" in dental and vision claims, and it expects the decrease in utilization to continue in the second quarter. That drop in claims was offset by investments needed to ready 90% of Centene's workforce to work from home.
Centene also expects to enroll more members in Medicaid and the ACA exchanges as people are laid off and lose their job-based health insurance, which will bring in more revenue for the insurer. Some states have launched special enrollment periods or the exchanges or have suspended processes to determine Medicaid eligibility, which is also helping to boost insurance rolls.
That added membership is the primary reason why the company increased its revenue outlook for 2020 by about $5 billion to $7 billion to $110 billion to $112 billion. Neidorff emphasized the uncertainty that surrounds the company's expectations, given it's unknown how long and how severe the pandemic will be. The trends in costs and healthcare use could change throughout the year.
For example, while claims for COVID-19 tests and treatment were sparse in the first quarter, Centene expects to see more coronavirus-related claims beginning in the second quarter. Centene, like other insurers, waived patient costs for testing and treatment. Executives also said patients could reschedule some of the healthcare services they postponed as stay-at-home orders are lifted. Services could even be more costly if patients' conditions worsened while on lockdown.
"Large provider groups expect pent-up demand to return early in the third quarter and continue into our fourth quarter," Neidorff said. "We expect utilization to increase as restrictions are lifted and members return to more normal pre-pandemic behavior."
And as the economy recovers, people who lost their jobs would return to work, partially erasing Centene's membership gains.
In all, Centene said its first quarter financial results were "solid." The first quarter ended March 31 was Centene's first with WellCare Health Plans, which it acquired for $19.6 billion on January 23. The addition of WellCare boosted quarterly revenue to $26 billion, an increase of 41.1% compared with the same quarter in 2019. It also helped increase membership 60.6% to 23.8 million.
Centene's net income fell to $46 million in the first quarter from $519 million at the same time a year ago. That decrease was primarily the result of $313 million in expenses related to the WellCare acquisition and a $166 million reduction in the value of some assets, according to Centene's earnings release. The pandemic will likely delay the integration of WellCare into the Centene business, executives said.
Centene also experienced lower investment income in the first quarter because of the economic downturn, as well as higher interest expense related to financing the WellCare deal. It held $22.2 billion in cash and investments at the end of the quarter, and total debt of $17.3 billion.
"We believe we are in a strong financial position with a solid balance sheet and and abundant liquidity. We have always been effective managers of our balance sheet, which has become more important than ever as it enables us to fund our priorities as well as respond to the pandemic," Neidorff said.