Centene Corp., one of the largest Medicaid managed-care insurers in the country, nearly doubled its profit in the first quarter as the company continues to win state contracts.
Now Centene and its peers will closely watch the federal government, which will release new Medicaid managed-care rules any week now. The rules are expected to address inadequate Medicaid provider networks and establish ratios of how much Medicaid money insurers can keep as profit.
Centene's first-quarter earnings increased from $33 million last year to $63 million this year. Revenue soared 48% to more than $5.1 billion. Although that amounts to a relatively nominal 1.2% profit margin, investors are bullish on companies such as Centene because more states are considering outsourcing the care management of their Medicaid programs.
“The results for this quarter are wholly consistent with our thesis and back our view that (Centene) should see significantly higher earnings power in the future,” Barclays Testing analyst Josh Raskin wrote in a research note Tuesday.
The top-line growth was due in large part to membership growth, the St. Louis-based company said. Centene covered 4.4 million people as of March 31, a 44% increase from the same period last year.
Nearly all of Centene's members have some form of Medicaid coverage. New and expanded state contracts in Florida, Illinois, Louisiana, Ohio and Texas drove much of Centene's higher patient base.
Centene also quadrupled the number of people who bought its health plans through the Affordable Care Act's exchanges, totaling almost 162,000. Ninety percent of its exchange enrollees are eligible for subsidies, Centene CEO Michael Neidorff said on an investor call Tuesday morning.
Centene's membership should grow even more during the next several months. The company has won Medicaid contracts with Missouri and Texas, as well as the Mississippi Department of Corrections. Executives did not comment about Medicaid contracts that are currently open for bidding, like Iowa's.
Publicly traded insurers have increasingly viewed Medicaid as an appealing business opportunity even though Medicaid patients historically have higher medical costs. States pay insurers fixed rates, and insurers keep all profit that is not used to manage and cover care. In the first quarter, Centene said about 90 cents of every premium dollar went toward medical claims for Medicaid members.
But managed-care companies have been criticized because those incentives may prod them to deny care to the nation's poorest residents, who may need the care the most. Questions have also been raised about whether the rates that states pay insurers are actuarially sound.
HHS sent the Medicaid managed-care rules to the White House's budget office for review in March, meaning they could be published in the Federal Register at any time.