Centene Q3 profit skyrockets on WellCare close, ACA settlement

Dive Brief:

  • Centene reported a profit of $568 million for the third quarter, nearly six times more than its net earnings of $95 million in the prior-year period in large part due to the addition of WellCare, which closed in January. Revenue also grew by 53% to $29 billion, beating Wall Street expectations along with membership growth, which topped 25.2 million — a 65% increase from Q3 2019.
  • However, the St. Louis-based insurer’s third quarter results also were aided in part by a one-time settlement of $398 million related to the Affordable Care Act risk corridors case, executives said Tuesday.
  • Lower utilization of healthcare services during the quarter was partially offset by higher testing and treatment costs for COVID-19, the payer said.

Dive Insight:

Insurers have warned that depressed utilization as a result of the pandemic is only temporary, and that use of healthcare services will eventually return. They have pointed to the back half of the year.

However, Centene executives said during an earnings call Tuesday that traditional utilization was still below historical levels, although just slightly, and leaders expect it to continue to increase in the fourth quarter.

As many patients delayed care — either out of fear or due to the shutdown of electives — insurers benefited financially. They are sensitive, though, to the optics of profiting off a pandemic and have eliminated cost sharing measures or implemented other programs for members.

Centene reported a health benefits ratio of 86.4% for the third quarter, also beating Wall Street expectations. The ratio is an important measure that compares the amount an insurer brings in from premiums to the amount it spends on care.

However analysts note that without the risk corridor settlement, the ratio would have been higher, clocking in at 87.7%. “That’s not an inspiring outcome when read throughs from other reporting companies suggest cost trends were below the baseline in 3Q,” analysts with Jefferies noted Tuesday morning.

Centene said headwinds to its health benefits ratio include retroactive state premium rate adjustments and risk-sharing mechanisms.

Overall, analysts at SVB Leerink noted, “The results look good enough relative to expectations on a comparable basis, not much better, and not much worse, in our view.”

The company adjusted its 2020 earnings per share guidance following the boost from the risk corridor settlement. Centene now expects earnings per share to be between $4.90 and $5.06 from a previous range of $4.76 and $4.96.

On the earnings call, Centene CEO Michael Neidorff offered his expectation for the U.S. Supreme Court review of the ACA, set for one week from Election Day. He said he is “still relatively confident” the law will be upheld. ”I don’t believe when push comes to shove they really want to put all these people in the height of a pandemic on the streets with no insurance,” he said.