Centene Finds Success In ACA Marketplaces

Feb. 27--Some of the nation's health insurance giants are complaining that they are losing money on the health insurance marketplaces created by the Affordable Care Act.

Lower-than-expected enrollments and higher-than-expected patient costs have eroded insurers' profits. The nation's largest insurer, Minnesota-based UnitedHealth Group, is even threatening to drop out entirely.

Yet, Clayton-based Centene is thriving. Though its core business remains managed care for state-run Medicaid programs, Centene has found a growing, lucrative niche in the federal and state-run marketplaces.

Instead of offering a broad range of plans, the company is narrowly focusing on low-income individuals who have lost their Medicaid eligibility and need to find a private health insurance plan.

By selling insurance to consumers the company already knows, Centene plays to its strength.

"We deal with the uninsured and underinsured," Michael Neidorff, chairman and CEO of Centene, told the Post-Dispatch. "That's our niche."

From the start, insurers feared the marketplaces would attract older and sicker consumers, and many insurers have said that's exactly what has happened, causing them to incur greater costs than they expected.

The industry's troubles have led some to question the viability of the marketplaces, a signature piece of President Barack Obama's landmark health care bill.

But health care economists say the stumbling by some insurers and the success of others are signs the market is working.

Centene's success shouldn't be a surprise said Linda Blumberg, a health care economist with the Urban Institute.

Legacy Medicaid managed care providers started off from a much more competitive place, Blumberg said.

"Medicaid managed care plans were very focused on a low-income population and in addition they tended to have very limited provider networks because they had to contract at lower costs to hit the market with Medicaid pricing," Blumberg said.

The vast bulk of Centene's business is managing the care of Medicaid recipients or poor individuals on behalf of state governments. Centene provides care to 3.5 million Medicaid members in 19 states, according to its latest annual filing with the Securities and Exchange Commission.

But each year, some of these recipients find that they no longer qualify for Medicaid due to higher incomes, though they still may be eligible for hefty subsidies available on the marketplaces.

This created an opportunity for Centene.

"Our game plan was churn. That's it," Neidorff said in an interview.

It also makes it easier for former Medicaid recipients, who will be able to remain with the same network, he added.

Centene already has a network of physicians and health providers for its Medicaid program, Centene enrolled 74,500 people in insurance plans with narrow networks and low premiums when the marketplaces began operating in 2014. Typically, the plans aren't offered statewide but in regions where it manages Medicaid programs.

In 2015, the company nearly doubled enrollment, with a total of 146,100 individuals in 12 states.

This year, Centene expanded its health insurance marketplace business into New Hampshire, state No. 13. Once the Clayton-based company completes its pending acquisition of HealthNet in coming months, it could have as many as 500,000 enrollees in exchange plans.

In some states, Centene's plans are EPOs, or exclusive provider organization, which typically offers a limited network of providers and no out-of-network benefits.

Though anyone can buy the plans where they are available, the company is focusing on individuals who are ineligible for Medicaid and have incomes below 250 percent of the poverty level. Some of these people already may have entered and exited a Centene-run Medicaid plan in the past few years.

David Windley, an analyst with Jefferies, said there is already "brand recognition for Centene in that segment of the market."

Even though Centene commands a small portion of the total exchange market, Windley said the marketplace plans allow Centene to keep hold of those enrollees.

"It protects these Medicaid plans from losing members when (enrollees) get a job and move out of Medicaid eligibility," he said.

But the marketplace does come with risks.

If the company does not price plans adequately, it could have a negative effect on Centene's finances. The company's plans could end up with individuals who are sicker and more costly than expectations, the company cautioned in a recent regulatory filing.

Price too high and you could slow growth. The Urban Institute's Blumberg said consumers shopping on the exchange are extremely price-sensitive, particularly low-income populations

And enrollment could even fall. Los Angeles-based Health Net Inc., which Centene is buying, reported Thursday that enrollment in its individual plans dropped 6.6 percent as fewer individuals purchased plans. Health Net experienced steep declines in individual enrollment in Arizona and the northwest. Like Centene, Health Net focuses on government-sponsored health plans, but it also offers individuals marketplace plans.

But risks are part of competitive marketplaces, according to Blumberg.

"Those insurers that can't or won't compete are not going to do well, and they're going to have to leave the market but that's what competition is about," she said.

"The whole idea is: we wanted competition to drive costs down," Blumberg said.

Samantha Liss -- 314-340-8017

@samanthann on Twitter

[email protected]

___

(c)2016 the St. Louis Post-Dispatch

Visit the St. Louis Post-Dispatch at www.stltoday.com

Distributed by Tribune Content Agency, LLC.