Winners of a lucrative Texas Medicaid contract emerged last week during third quarter earnings for the nation's largest payers, with Centene and UnitedHealth coming out on top and Anthem, Cigna and Molina taking hits.
Nearly $10 billion was in play in the latest Medicaid contract to care for Texas' aged, blind and disabled population, commonly referred to in the industry as ABD. That population is broken up into 13 service areas and insurers compete to offer plans in those regions.
The population is highly sought after by Medicaid managed care providers because it represents greater revenue potential than caring for a population mainly comprised of children, Dean Ungar of Moody's told Healthcare Dive.
The ABD population consumes a lot of healthcare services and, because of this, the per member, per month payment paid by the states to Medicaid managed care companies tends to be higher, he said.
The awards quickly created winners and losers for those bidding on the contract. All in, the three-year contracts are worth about $10 billion, according to the Texas Health and Human Services. The new contracts are set to take effect in September, but payers have a window to challenge the results. (Superior Health plan is operated by Centene.)
The biggest loser appears to be Molina, followed by Cigna and Anthem. The biggest winners are Centene and UnitedHealth Group.
The contract loss seemed to overshadow Molina's third quarter results.
CEO Joe Zubretsky opened the call with news of the contract loss. He said he was "very disappointed" to hear the results. The company was not selected to return to five of the six regions it has served in Texas through the Star+Plus program. Instead, Molina was selected to serve members in two regions, one of which is new to the company.
Analysts with Barclays said Molina had "outsized exposure" in Texas, representing a loss of more than $900 million in revenue.
Cigna did not win back any regions and will end up winding down the business next year, CFO Eric Palmer said during its call with investors. He described the results as "very immaterial" and said it will represent a $300 million earnings decline, less than a penny of earnings per share. Overall, it represents a $900 million revenue decline, according to Barclays' estimates.
The biggest winners were Centene and UnitedHealthcare, which "successfully defended all of their regions and both gained additional regions," a recent Barclays note said.
A growing number of states contract with private payers in a Medicaid managed care market worth $264 billion, according to the Kaiser Family Foundation.
Third quarter earnings calls for Anthem, Centene and UnitedHealth Group were held before the announcement of the contract procurement in Texas.
Medical cost ratios climb
Meanwhile, medical cost ratios continued to pose challenges for many payers during the third quarter.
Every major payer except Molina reported an increased in their medical cost ratio compared to the prior-year period.
The medical cost ratio is an important measure as it shows the amount an insurer spends on medical claims as compared to the amount of premiums its brings in.
Many blamed the uptick on the suspension of health insurance fee for 2019. When the fee was in place last year, insurers tended to raise premiums, or pass through the fee to consumers in the form of higher premiums, Ungar said. Even if underlying medical costs remained the same year over year, collecting less revenue due to the elimination of the fee messes with the medical cost ratio when comparing 2018 to 2019.
For example, say medical costs were $100 and the premiums collected were $130 for 2018, which includes $10 to help offset the fee. The medical cost ratio would be $100/$130, which amounts to 76.9%. Now, take away the $10 fee and premiums collected for 2019 equate to $120. If medical costs stay the same, the ratio would be $100/$120 or 83.3%, a higher medical cost ratio.
The is what most insurers are experiencing when they say the moratorium on the fee is driving the increase in their medical cost ratios.
Still, Cigna also attributed the increase to its individual business, which is experiencing higher costs overall.
Centene also reported an increase in its medical cost ratio during the second quarter of this year. At the time, CEO Michael Neidorff said members with Affordable Care Act exchange plans were staying with their plans longer, as opposed to dropping the coverage midway through the year, and reaching their deductibles, causing costs to go up for Centene.
This quarter, Centene provided a detailed explanation on the increase, including $440 million in payments from California that are administered as a premium adjustment. The payer also noted the effect of the health insurance tax moratorium.