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Centene: We like the PPACA exchange system

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Centene Corp. (NYSE:CNC) still likes the Patient Protection and Affordable Care Act (PPACA) public health insurance exchange market just fine.

The St. Louis-based carrier recently completed a $6 billion-dollar acquisition of Health Net Inc. (NYSE:HNT), and about 61 percent of its enrollees are in the Medicaid plans or Children’s Health Insurance Program (CHIP) plans it administers.

After Centene announced first-quarter earnings today, company executives spent most of their time on a conference call with securities analysts talking about efforts to integrate Health Net, and to win more Medicaid and CHIP business.

But Michael Neidorff, Centene’s chairman, also spent some time talking about the PPACA exchange business, and he presented a much more positive view of that market that executives at UnitedHealth Group Inc. (NYSE:UNH) did last week.

See also: Andy Slavitt expects health insurers to ‘fill shelves’ in 2017 [With video]

The company as a whole is reporting a net loss of $17 million for the first quarter on $7 billion in revenue, compared with $63 million in net income on $5.1 billion in revenue for the first quarter of 2015.

Thanks to the Health Net deal, the company ended the quarter providing or administering major medical coverage for 11.5 million people, up from 4.4 million people a year earlier.

The number of enrollees in PPACA exchange qualified health plans (QHPs) increased to 683,000, from 161,700 a year earlier.

See also: PPACA World 2017: New York may be alive

For a look at some of what Neidorff and other Centene executives said about the QHP enrollees during the analyst call, which was streamed live on the Web, read on.

Money projection target

1. Centene has been happy with its exchange plan enrollee morbidity projections

Centene did not break out separate QHP enrollee premium or earnings figures, but the company said the amount it expects to pay into the PPACA risk-adjustment program as of March 31 was $335 million, up from $72 million per year earlier.

The PPACA risk-adjustment program is supposed to be a permanent program that helps insurers offer individual coverage without use of medical underwriting to screen out people with health problems, by using cash from individual major medical coverage issuers with relatively low-risk enrollees to compensate issuers with relatively high-risk issuers.

Because of the effects of the Health Net acquisition, it’s not clear how many total individual commercial health enrollees Centene now has, on and off the exchange, but the company’s large risk-adjustment program payable means the company’s individual commercial health insurance enrollees appear to be much healthier than typical individual major medical enrollees in the markets the company serves.

The company was expecting to pay $3 million, or $44 per March 31 QHP enrollee, into the PPACA risk corridors program, for the period ending March 31.

A year earlier, the company was expecting to pay $23 million into the risk corridors program, or $142 per March 31, 2015, QHP enrollee.

PPACA drafters created the risk corridors program in an effort to give health insurers an incentive to participate in the exchange QHP program, by using cash from thriving issuers to help struggling issuers in 2014, 2015 and 2016. If an issuer’s claims are less than 97 percent of the expected amount, the issuer is supposed to pay 50 percent of the extra cash saved into the risk corridors program fund.

Centene’s risk corridors payable numbers mean that the company had generated about $88 in extra gains per March 31 QHP enrollee as of the end of the first quarter, and about $280 in extra gains per March 31, 2015, QHP enrollee as of March 31, 2015.

Online databases show that the full, unsubsidized price of Centene QHP coverage has been about $400 to $600 per month. The risk corridors numbers suggest that Centene may have generated about $1,200 to $1,800 in premium revenue per QHP enrollee in the first quarter and averaged at least $35 in gain per QHP enrollee.

“Centene’s exchange experience continues to be favorable, and we’re achieving margins at the higher end of our targeted range,” Neidorff said during the call. ”Centene has maintained a disciplined approach to pricing from day one.”

When a securities analyst asked Neidorff about other health insurers’ complaints about problems with analyzing QHP enrollee health risk, Neidorff said, “That’s their issue.”

See also: How sick are PPACA enrollees? Blues: Very 

PPACA metal level chessboard

2. Centene sees itself as playing a different game than some other insurers.

When a securities analyst asked Neidorff about UnitedHealth’s concerns about the QHP market, Neidorff said that he has great respect for UnitedHealth, but that UnitedHealth has been going after higher-end exchange users who want higher-value gold- or platinum-level coverage.

Centene has focused on serving lower-income enrollees who may be moving up from eligibility for Medicaid, Neidorff said.

More than 90 percent of Centene QHP enrollees are eligible for the subsidies that the PPACA exchange system uses to help low-income users pay for coverage, Neidorff said.

Centene is not expecting to attract many of the consumers who have been using UnitedHealth QHP coverage, but it will consider expanding into the PPACA exchange programs in states in which the company has strong Medicaid programs, he added. 

See also: UnitedHealth’s earnings: 3 quick hits for agents

Boarded up house, for poverty

3. Centene is used to covering low-income people with health problems.

For insurers that have focused on serving commercial plan enrollees, learning how to anticipate the health needs of lower-income people who may have been uninsured for years before they signed up for the exchange system has been challenging.

For Centene, a company that has focused on serving the Medicaid and CHIP market, one appeal of the QHP market is that QHP enrollee claims tend to be much lower than Medicaid enrollee claims.

The QHP business helped cut the company’s health benefits ratio to 88.7 percent of revenue in the first quarter, from 89.8 percent in the first quarter of 2015.

See also: 

Health earnings Q1 2016: What to expect

S&P says Medicare Advantage issuers will be fine


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