Centene reported a more positive outlook for Medicaid redeterminations this year, but could still be hit by the effect of mismatched rates and acuity in 2024, according to executives.
The St. Louis-based payer predicts Medicaid spending to be lower than previous expectations in 2023, with an improved medical loss ratio forecast of 89.8%.
However, its MLR — a marker of spending on patient care — is expected to rise to 90.1% next year, CFO Andrew Asher said on a Friday morning call with investors.
Similarly, Centene expects to bring in $77 billion of Medicaid premium revenue in 2024, down from $84 billion in 2023. That drop is largely driven by the ongoing effect of redeterminations on rates, Asher said.
States could have begun Medicaid eligibility checks as early as April 1 after pausing them during the pandemic. Only two of Centene’s states started in April, with the remaining 28 evenly distributed across May, June and July start dates, pushing potential financial impacts into 2024, according to management.
Over the past month and a half, Centene has refreshed its state-level models and projections, giving it an updated view of redeterminations’ impact in its 31 Medicaid states — including on the anticipated degree and timing of rate actions.
“Based on that analysis, 2023 progression looks slightly better, but we now believe it is prudent to build in a more conservative view of the potential disconnects between rates and acuity that could manifest in some of our states in 2024,” Centene CEO Sarah London said on the call.
The payer expects that states will ultimately adjust rates to reflect changes in acuity, but it’s building a provision into its 2024 target in case there’s a gap in that timing, London said.
“Many states” have acknowledged the need to revise rates as redeterminations unfold, according to Asher.
Centene, as the nation’s largest Medicaid managed care organization, has significant exposure to the effects of Medicaid redeterminations.
The payer lost 262,700 Medicaid members in the second quarter, dropping its total Medicaid lives to just over 16 million, according to financial results released Friday.
In the quarter, Centene beat Wall Street expectations on both earnings and revenue, with a topline of $37.6 billion, up 5% year over year. The health insurer reported profit of $1.1 billion.
Centene raised its 2023 earnings outlook following the results, and reiterated its 2024 outlook. Analysts said even maintenance was positive, given redeterminations uncertainty.
Research firm Wolfe Research downgraded Centene coming into the quarter, citing the impact of redeterminations along with concerns about the payer’s ability to improve its Medicare Advantage star ratings.
Centene is one of several payers that saw their star ratings, a measure of plan quality and member satisfaction that results in bonuses, fall for 2023, pressuring earnings targets.
Centene plans to focus on its core member base in Medicare, which is more medically complex, and invest in priorities like provider enablement tools for value-based care.
Those strategies — and recent CMS changes to star ratings, including a health equity index adjustment regulators will start to measure in 2024 and 2025 — should help Centene boost its stars, London said.
Moving plans from three-and-a-half to four stars results in 5% more revenue on average, while moving from three to three-and-a-half stars results in 2% to 6% more revenue, which is also valuable, Asher said.
“Given we have approximately 80% of our current members in contracts below three-and-a-half stars from last October’s scoring, our focus now is to first maximize three-and-a-half-stars, especially as our membership will be shifting and tilting more towards low-income and [dual-eligibles] in 2024 and beyond,” Asher said.
The CMS is expected to release the latest tranche of star ratings in October. At that time, Centene expects to have between 14% and 18% of its Medicare membership in four-star plans.
“We are conservatively assuming the downside scenario and therefore expect minimal four-star progression year over year, but we expect to see solid overall contract improvement,” London said.
Centene leadership also noted utilization trends were stable in the quarter, and continue normalizing post-COVID as patients resume preventive care like screenings.
Investor fears of skyrocketing medical costs sparked by UnitedHealth and Humana coming into the quarter have ameliorated due to payer reports of medical costs that are largely in-line with expectations.