Centene may scale back Medicare Advantage benefits if the Centers for Medicare and Medicaid Services carries out a rate cut next year, executives said Tuesday.
The health insurance company is the latest to report higher-than-expected costs for its Medicare Advantage members and to bemoan a CMS proposed rule that would trim benchmark payments by 0.16% in 2025, excluding the effects of risk adjustment. That wouldn't be enough to cover expenses, CEO Sarah London said during a call with investor analysts to announce fourth-quarter and full-year earnings.
Related: Medicare Advantage provider, benefit cuts may follow rate reduction
“We’re in the position of not trying to grow MA. We’re ultimately trying to recover margin in the back half of the decade,” Centene Chief Financial Officer Drew Asher said. “Our product may be a little less attractive for seniors if we don’t make progress on rates.”
Medicare Advantage carriers including industry leaders UnitedHealthcare and Humana are sounding an alarm about surprisingly high medical expenses in the closing months of 2023 and a negative benchmark update. They may react by hiking premiums, trimming benefits, reducing provider reimbursements and reconsidering geographic expansions.
Centene's Medicare Advantage spending related to COVID-19, influenza and respiratory syncytial virus rose during the fourth quarter but has since come down, London said. Outpatient Medicare Advantage utilization has remained high since the second quarter, although Centene priced appropriately for the rise and maintains its financial projections for the year, she said.
Centene recorded $45 million in net income during the fourth quarter, a 121% improvement from a net loss in the year-ago period, as revenue increased 11% to $39.5 billion. Net income for the full year grew 124.8% to $2.7 billion, or $4.95 per share, and revenue rose 6.5% to $154 billion. Centene shares opened at $73.75 on the New York Stock Exchange Tuesday, down less than 1% from Monday's closing price.
Although CMS has proposed a modest rate decrease, Medicare Advantage insurers are still adapting to numerous policy shifts in recent years that have squeezed their margins, such as the creation of a new risk-adjustment methodology and stricter quality standards under the Star Ratings program.
Combined with the ongoing implementation of those and other policies, the 2025 Medicare Advantage proposed rule would reduce payments by a net 1.3%, according to Centene. That wouldn't be enough to make up for higher costs, London said.
“Bearing in mind the continued expectation for the multiyear phase-in of risk adjustment changes, we view the preliminary rates as insufficient with respect to general medical cost trend expectations,” London said.
Centene's Medicare Advantage membership declined 15% to 1.2 million at the end of 2023, which London attributed to a revised marketing strategy that prioritized its own agents over third-party marketers. The company expects that Dual Eligible Special Needs Plans enrollees will make up 35% of its Medicare Advantage membership by year-end, she said.
The company is focused on boosting its star ratings and is holding to its goal that 85% of Medicare Advantage members be enrolled in plans with four- or five-star scores by the end of 2025, Asher said. Centene also is seeking cost savings from continued efforts to centralize and automate operations, he said.
Medicaid, exchanges results
Medicaid membership declined 9.4% to 14.5 million in 2023 amid the ongoing Medicaid redeterminations process. Centene owes an estimated $1.8 billion in Medicaid risk-corridor payments and medical loss ratio clawbacks, London said. The insurer's Medicaid MLR reach 90.6% during the fourth quarter, a 0.6 percentage point increase from a year before. Centene is seeking higher rates from state authorities, she said.
Health insurance exchange membership rose 71.9% to 4.3 million as marketplace enrollment overall reached record levels during the open enrollment period for 2024.
Centene's stronger-than-expected exchange performance has led the company to upgrade annual revenue projections by $2.5 billion to $134.5 billion-$137.5 billion. The company expects at least $6.70 in adjusted earnings per share in 2024.
