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Centene's Solid Q1 Earnings Buoyed by Managed Care Membership

By Jack O'Brien  
   April 24, 2018

The insurer released its first-quarter earnings Tuesday, with increased total revenues and managed care membership base.

Centene Corp., released its first-quarter earnings report Tuesday, highlighted by $13.2 billion in total revenues, a 13% increase year-over-year, as well as an operating cash flow of $1.8 billion.

Centene attributed the increase in revenues to growth in the health insurance marketplace, including expanding new programs in several states, as well as the reinstatement of the health insurer fee this year. However, lower revenues in California due to the removal of the in-home support services program from its Medicaid contract partially offset the organization's revenue increases.

"Our strong first quarter results set the stage for Centene to maintain positive operating and financial momentum throughout 2018," Michael Neidorff, CEO of Centene, said in a statement.

The insurer's reported diluted earnings per share for the first quarter of 2018 was $1.91, compared to $0.79 in the first quarter of 2017. Similarly, Centene achieved an adjusted diluted earnings per share of $2.17, compared to $1.12 at the same time last year. The adjusted diluted earnings per share also exceeded the organization's expectations by $0.12 as a result of the delayed financing for the acquisition of Fidelis Care.  

Neidorff said the organization expects to close on its purchase of Fidelis by July 1, pending approval from New York State Attorney General Eric Schneiderman. Centene has also agreed to pay $340 million to the state over five years to provide "high quality healthcare to vulnerable populations."

Related: Fidelis-Centene Deal Gets Crucial Regulatory Approval from New York State

Below are highlights from Centene's first quarter earnings report, including a managed care membership of 12.8 million, adding 684,000 members, a 6% increase compared to the first quarter of 2017.

  • Cash, investments, and restricted deposits totalled $11.9 billion.

  • Medical claims liabilities totaled $4.8 billion.

  • Centene added 296,500 commercial members compared to the first quarter last year.

  • Health benefits ratio (HBR) was 84.3% for the first quarter of 2018, slightly down from the HBR of 87.6% in the first quarter of 2017.

  • Centene said the HBR decrease was the result of the "performance and seasonality in the health insurance marketplace business" as well as the reinstatement of the health insurer fee in 2018. The HBR improvements were also affected by the increase in flu-related costs during the fourth quarter of 2017.

  • The selling, general, and administrative (SG&A) expense ratio for the first quarter of 2018 was 10.5%, compared to 9.8% for the first quarter of 2017.

  • The adjusted SG&A expense ratio for the first quarter of 2018 was 10.3%, compared to 9.3% for the first quarter of 2017.

  • Centene's leadership did not discuss what prices and rates will look like for 2019.

  • Executives said the organization had an 80% retention rate on members enrolled through the Affordable Care Act, with an effectuation rate of 90%, both above the national average.

  • Centene also defended its conservative financial projections relating to the Fidelis deal since the acquisition has not been finalized yet.

  • Executives stated that if Centene had Fidelis for the full year, the adjusted diluted shares per earnings would have been $0.30 - $0.40 higher.

  • Neidorff said the organization views its vertical integration strategy as a way to expand its market share and grow in populations it does not currently cater to.

Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.

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