- Insurance giant Anthem reported an increase in its medical cost ratio for the second quarter, reaching 86.7% from 83.4% the prior year. Medical cost ratio is a way to measure the cost of care for patients as a percentage of premium dollars.
- Anthem tied the ratio bump to its Medicaid business. However, it's not due to increase in actual medical costs but from a lack of appropriate payment from states based on the risk or health of the members Anthem is taking on.
- "Clearly there is a mismatch between the risk of the members and the rates that we are receiving today," CFO John Gallina said during Wednesday's conference call with investors.
Anthem shares slid 4% in early morning trading on Wednesday following the call with investors, despite beating analyst expectations on earnings and revenue.
For the quarter, Anthem reported net income of $1.1 billion on revenue of $25.4 billion. Medical enrollment picked up more than 1 million members for a total of nearly 41 million members.
Despite the uptick in net income and revenue for the second quarter, many analysts focused their questions on the company's increased medical cost ratio.
Company executives attempted to assure investors the issue was isolated to a few states within its Medicaid book of business and said medical cost trends in the commercial and Medicare businesses were in line with expectations.
Anthem provides Medicaid coverage to members in 23 states. Company officials would not comment on which states were experiencing pricing and reimbursement issues.
Gallina said the company continues to work with states — almost on a daily basis — to sort through the issue. In some instances, rate increases have been secured for the second half of the year which will improve the cost ratio and profitability of the Medicaid business.
"When the rates were first set, they were set on a slightly different population and mix of members than what we are serving. We continue to work with the states to ensure we’re getting the appropriate adjustments," he said.
Its competitor Centene experienced a similar bump in medical cost ratio but was limited to its ACA-exchange business. Many of those members are staying with their plans longer, reaching their deductibles and out-of-pocket maximums, causing costs to increase for Centene, the company reported Tuesday.