In its fourth-quarter earnings call Tuesday, Centene Corporation said its total revenues for the quarter grew 8% to $12.8 billion compared to the previous year. For the full year, Centene’s revenues increased by 19%.
Centene, known for its Medicaid managed care offerings, said the revenue increase is connected primarily to expanding its Affordable Care Act exchange business and moving into new states.
Centene’s managed care membership grew 7% during 2017 and ended with 12.2 million members.
Beyond the ACA membership growth, Centene, which specializes in government-sponsored healthcare, said its 2017 revenue increase was also helped by having a full year of Health Net’s results, which Centene purchased for $6.8 billion in 2016. The revenue increase was partially offset by the moratorium of the health insurer fee in 2017, lower membership in the commercial business in California and lower specialty pharmacy revenues.
Centene’s operating cash flow was $450 million for Q4 and $1.5 billion for 2017, which was 1.8 times net earnings for the year.
The company’s health benefits ratio, also called medical loss ratio, increased in the fourth quarter. The HBR was 87.3% compared to 84.8% a year ago. For the year, the HBR was also 87.3% compared to 86.5% for all of 2016. This means more money being paid into the system went out to pay for medical and benefit costs.
Centene said the HBR increase was mostly connected to the $195 million of revenue in the fourth quarter of 2016 related to the minimum loss ratio amendment in California. That reduced the fourth quarter of 2016 HBR by 170 basis points. The payer also said the increase is partially due to new and expanded health plans, which initially operate at a higher HBR, a premium rate reduction for California Medicaid expansion, an increase in flu-related costs in the 2017 Q4 and the lack of cost-sharing reduction subsidies from the federal government.
Michael Neidorff, Centene chairman and CEO, said higher than expected flu-related costs in the fourth quarter will continue in Q1 of 2018 and is a “potential headwind” for Centene in the first quarter. However, the overall cost trend is stable. “We continue to see overall stable medical cost trends consistent will our expectations in the low-single digits,” he added.
Regarding membership, Centene’s ACA plan membership skyrocketed in 2017: 959,600 compared to 537,200 at the end of 2016. Also, Neidorff said ACA membership increased to more than 1.6 million members last month. He added that Centene retained about 80% of its ACA member population.
Neidorff doesn't expect Congress ending the individual mandate penalty will affect Centene much since their members are usually fully reimbursed for costs. “Given the growth in the marketplace and how we’re executing on it, we see no reason that will change in ‘19,” Neidorff said.
Centene also expanded its ACA footprint last month. The payer entered Kansas, Missouri and Nevada, in addition to its previous offerings in Florida, Georgia, Indiana, Ohio, Texas and Washington. The company also grew its Medicare Advantage footprint by expanding to Ohio. It already offered MA plans in Arkansas, Indiana, Kansas, Louisiana, Missouri, Pennsylvania, South Carolina and Washington.
In response to a question about being the only payer in some ACA markets, Neidorff said Centene has the same focus on low-income members and states haven’t pressured the company to offer plans beyond its membership comfort zone. “We would be very quick to resist any pressure to go away from what has been our traditional membership,” Neidoff said, adding that there are non-ACA individual products available in those counties.
Centene’s footprint is expected to increase even more this year with the $3.75 billion purchase of Fidelis Care in New York. The company plans an April 1 closing date. Once the Fidelis deal is completed, Centene will provide MA in New York. Centene expects MA will drive more than 20% of annual growth in the coming years for the company.
Though Centene is expanding in Medicare and the ACA exchanges, Medicaid remains its biggest book of business. Centene had 7.1 million Medicaid members at the end of 2017, which was more than 200,000 members compared to the end of 2016. Also, commercial members increased to nearly 1.6 million, which was over 300,000 more members than the end of 2016.
Tax changes, work rules
Regarding the recent tax overhaul, Centene plans to use that money to invest in growth and initiatives, such as leadership development programs, and technology like digital health and analytics. “This will drive to better health outcomes at lower costs,” Neidorff said.
Being a major payer in Medicaid, Centene was asked during the earnings call about states seeking Medicaid waivers to require beneficiaries to work.
Neidorff said he supports the idea and doesn't think a work requirement would affect Centene since the company also offers ACA plans. “As they become successful in the workforce, they can move over into our exchange program,” he said.
For this year Centene raised its guidance to between $60.6 billion to $61.4 billion in revenues. Jeff Schwaneke, executive vice president, CFO and treasurer, said the payer raised guidance after seeing its ACA membership exceed expectations. Centene expected 1.3 million ACA members for 2018, but has already reached more than 1.6 million.