Centene Corp. public health insurance exchange plans could soon attract tens of thousands of sick people dumped by competitors, and company executives say they are okay with that.
Executives talked about the possibility of an influx of sick Affordable Care Act exchange plan enrollees Tuesday, during a conference they held to go over third-quarter earnings with securities analysts.
For insurers, rapid growth can be a threat as well as an opportunity, especially if the new insureds file more claims than expected.
Centene ended the quarter providing coverage for 582,600 ACA exchange plan enrollees, up from 155,600 a year earlier, and it’s on track to absorb many new exchange plan enrollees during the ACA exchange open enrollment period for 2017, which starts Tuesday and is set to end Jan. 31.
Centene acknowledges in a report filed with the U.S. Securities and Exchange Commission that doing business in the ACA system could be challenging.
“We may face difficulty in estimating our medical claims liability for the relatively new and evolving Health Insurance Marketplaces,” the company says, using the U.S. Department of Health and Human Services’ preferred term for the ACA exchange system. “Any failure to adequately price products offered in the Health Insurance Marketplaces may have a negative impact on our results of operations, financial position and cash flow”
But Michael Neidorff, the chairman of the St. Louis-based carrier, told analysts he thinks the company is expecting to see significant enrollment growth in 2017 and welcomes that growth.
“Some people are worried about whether we’ll pick up some of the individuals who are high-cost for other plans,” Neidorff said, in response to a question about Centene’s ability to find capital to support rapid growth. “We see ourselves in a very strong position to effectively grow [exchange plan management] and still maintain the margins that we’ve become used to having.”
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Centene’s no-frills provider network designed
Centene has traditionally specialized in doing business in the Medicaid market and in the markets for other government-run health programs aimed mainly at poor people and older people.
The company as a whole is reporting $145 million in net income for the third quarter on $11 billion in revenue, up from $93 million in net income on $5.8 billion in revenue for the third quarter of 2015.
Revenue grew as rapidly as it did mainly because Centene acquired Health Net, a Woodland Hills, California-based that had operated in the commercial health coverage, military and Medicare markets, in March.
Centene executives said during the conference call that the health of the people in the core government health program plans tends to be much worse than the health of exchange plan enrollees. The exchange business the company already has attracted has actually lowered the company’s ratio of medical claims to revenue, not increased it, the executives said.
Up till now, the executives said, Centene has held exchange plan claims down by appealing mainly to consumers who qualify for strong ACA subsidies. Heavily subsidized enrollees may be paying for coverage mainly because their out-of-pocket cost for coverage is low, not because they have an urgent need for care.
Centene has also kept costs down by offering the kinds of no-frills doctors and hospitals that typically serve people in Medicaid plans, not the kinds of providers traditionally available through typical commercial plans, executives said.
Neidorff said Health Net’s provider network strategy will protect it from a big influx of competitors’ high-cost stranded enrollees.
“If our network is of interest to them, that’s fine, because it’s a well-managed network,” Neidorff said.
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ACA risk-adjustment assistance
Neidorff said the nature of the only ACA insurer risk management program that will be in operation in 2017, the ACA risk-adjustment program also helps buffer the company against the effects of a sudden influx of high-cost enrollees.
Because Centene exchange plans tended to attract enrollees with low risk scores, it has had to pay about $300 million to plans with enrollees with higher risk scores through the risk-adjustment program, Neidorff said.
If Centene gets the competitors’ high-risk enrollees, it can keep some of the cash it was paying into the risk-adjustment program and spend it on the high-risk enrollees, Neidorff said.
Centene executives also talked about why their exchange plans have done well in connection with the Arizona and California markets.
Centene is keeping its own exchange plans in place in 2017 in Phoenix and in Pima County, Arizona, but it’s pulling Health Net’s old exchange plans out of the state’s ACA exchange program.
Centene executives said Health Net suffered in the Arizona exchange market partly because of problems with how Arizona phased in ACA requirements, and partly because of plan structure. In general, company executives said, carriers with a more traditional, commercial-insurance approach to the exchange plan market programs that carriers that have viewed the exchange plan market as being similar to the managed Medicaid plan market.
Centene is staying in the individual exchange market in California, but the company says it got California regulators to agree to many provisions that will make seeking non-emergency care out of network more difficult and more expensive. Company executives say they want enrollees’ use of out-of-network care to be unusual, not an everyday occurrence.
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