- Managed care giant Centene reported a bump in its medical cost ratio, increasing to 86.7% in the second quarter of 2019 compared with 85.7% in the prior-year period.
- Shares slid more than 2% during trading Tuesday morning despite beating Wall Street earnings expectations for the quarter and reporting membership and revenue increases.
- Centene CEO Michael Neidorff said growth in the medical cost ratio was fueled by Affordable Care Act exchange members who are staying with their plans longer, and are expected to reach their out-of-pocket maximums, causing costs to go up.
Overall for the quarter, Centene reported an increase of 2.2 million members and a 29% increase in revenue to $18.4 billion compared with the prior-year period. Net income for the quarter increased to $495 million, or $1.18 per share, compared with $300 million, or 75 cents per share, during the second quarter of 2018.
Neidorff sought to assure investors during the second quarter earnings call that it was business as usual for the health insurance exchanges and that retaining more members and for longer is ultimately good for business.
But during the call analysts tried to pinpoint how well the exchanges were doing in terms of margins as the company kept providing a wide range of between 5% and 10%.
However, Neidorff acknowledged his frustration over the questions focused on the margins within the exchange business.
"It's a little frustrating to see people concerned about a movement of margin which is doing so well within the range, is normal health insurance performance, and shows that this business is really growing and performing as we expect it to," he said.
However, it's important to know how the exchanges are performing because it's a meaningful line of business in terms of contributing to overall profitability, David Windley, an analyst with Jefferies, told Healthcare Dive.
"It's surprising that management would give a range that wide and then be irritated when analysts try to narrow in on where in a very wide range they're landing," Windley said.
Although the increase in medical cost ratio seems small, it's a big deal as it eats into profitability.
It's unclear why members are staying longer compared to previous years. When asked to give more clarity on the type of member that drops off in the middle of the year, Neidorff answered with a bit of sarcasm.
"We have 1.9 million members. You want to tell me which one you're thinking about? I mean seriously." he said.