Centene Played Big in Medicaid in 2015, But Can It Keep It Up?
Medical care ratio
In 2015, Centene Corporation (CNC) improved its medical care ratio from 89.3% in 2014 to 88.9% in 2015. The company’s medical care ratio exceeded those of Cigna (CI), Aetna (AET), and Anthem (ANTM), which had ratios of about 80.6%, 80.8%, and 83.3%, respectively. (For more on how medical care ratio is calculated and how it affects Centene’s profit margins, please refer to “Medical Care Ratio: Centene Compared to Its Peers.”)
The above graph shows that in 4Q15, Centene’s medical care ratio improved by 1.3%, from 89.3% in 4Q14 to 88.0% in 4Q15. The improvement is mainly attributed to lower medical service utilization among high-acuity members, especially in the long-term care category.
In 4Q15, Centene witnessed a positive impact from the medical management techniques that it applies to high-acuity enrollees. Additionally, the company also benefitted from premium rate adjustments in three of its largest markets—Georgia, Florida, and Texas—which became effective in the second half of 2015.
In 4Q15, flu season in the US was milder than in prior years. All the health insurance companies—especially those with a significant number of Medicare beneficiaries—benefitted from this trend, particularly the elderly population, which is more susceptible to the flu.
If Centene continues to improve its medical care ratio in future years, it would mean higher profit margins for the company and would likely benefit share prices in the iShares Russell Mid-Cap ETF (IWR), which has 0.13% in Centene.
Existing and new businesses
In 4Q15, Centene’s medical care ratio for new businesses improved from 89.4% in 4Q14 to 88.2% in 4Q15. The medical care ratio for existing businesses also witnessed a positive trend, from 89.2% in 4Q14 to 88.0% in 4Q15. The decline in its new business medical ratio stemmed from the shift of high-cost Florida long-term care and managed Medicaid businesses into Centene’s current business category.
Now let’s analyze the guidance provided by Centene for 2016.
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