The Q3 results for the “Big Five” are in. Loyal readers of the Say Ahhh! Blog will recognize them as the publicly-traded companies with the largest shares of the Medicaid managed care market: Aetna/CVS, Anthem, Centene, Molina, and UnitedHealth Group. Their Medicaid footprints for the quarter ending September 30, summarized below, reflect a continuation of the enrollment growth seen during Q2. Because the Secretary of HHS has extended the Public Health Emergency (PHE) declaration through at least the middle of January, and because the PHE is linked to a maintenance of eligibility requirement, these Medicaid enrollment trends will almost certainly continue through Q4. Increasing enrollment translates into increasing revenues, which helps to explain why the company managements are anticipating healthy earnings per share (EPS) results for stockholders.
The data in this table are drawn from reports (10-Q) that each company has filed with the Securities and Exchange Commission (SEC) describing its financial performance for the quarter that just ended. At the time the companies file these reports, they also hold an earnings call—a conference call between company management and financial analysts. The calls give management an opportunity to present their company’s financial performance and future prospects, and they give the financial analysts an opportunity to ask questions of management. The calls are public so that the analysts, their clients, and the public at large can have access to the same information at the same time for use in deciding whether to buy or sell the company’s stock.
We listened carefully to all five Q3 earnings calls for additional information about each company’s Medicaid lines of business. What we heard did not help us fill in any of the blanks in the table above. This lack of transparency was a little surprising, given the growing importance of Medicaid as a source of revenue for health insurers. According to the National Association of Insurance Commissioners, Medicaid has shown the “most significant increase in written premium” among all lines of health insurance business over the past ten years; in 2020, Medicaid accounted for $234.4 billion in direct written premium received by health insurers, second only to Medicare among the nine lines of business tracked by the NAIC. (“Written premium” is the amount charged by the insurer under the insurance contract, in this case the per member per month payment the MCO receives under the risk contract with the state Medicaid agency). One would think that institutional investors would be interested in these Medicaid fundamentals.
In any event, the questioning from the financial analysts was revealing. The analysts participating on these calls are from large investment banks like JPMorgan Chase, Goldman Sachs, BofA Securities, Morgan Stanley, Citigroup, etc. As expected, they focused largely on company financial performance—e.g., Centene management’s emphasis on “margin expansion”—and on other product lines, like Medicare Advantage and the Marketplace. They also zeroed in on the managements’ assessments of “headwinds”—factors that could depress growth and earnings—and “tailwinds”—factors that could boost growth and earnings.
In the case of the three companies for which the Medicaid line of business accounts for more than 20 percent of total membership—Anthem, Centene, and Molina—the “headwinds” questions focused on the impact of the PHE unwinding, as in “What can you tell us about the headwinds from Medicaid redeterminations?” All three managements acknowledged that they expected the unwinding of the PHE to begin sometime next year and that their Medicaid enrollment could be affected, but they stressed the uncertainty of the timing and extent of disenrollment. The Molina management was the most forthcoming: of the 700,000 Medicaid enrollees the company gained because of the suspension of redeterminations during the PHE, they expect to lose about half, resulting in a drop of revenue of $500 million in 2022 and $800 million in 2023. (Despite the losses from redetermination, management expects that Medicaid enrollment will be higher after the public health emergency ends than it was pre-pandemic).
The earnings calls with these three companies occurred before the October 28 release of the House legislative language for the phasing out of the MOE requirement beginning next April 1. If this provision is enacted, the new policies will likely affect their enrollment, revenue, and earnings projections. But for child health advocates, it is the fact of these projections, not their specifics, that matters.
These companies have a financial interest in ensuring that post-PHE eligibility redeterminations are done accurately, so that Medicaid beneficiaries are not disenrolled due to errors by overwhelmed eligibility staff or procedural red tape. The issue is clearly on the radar screen of the companies’ management teams as well as that of the financial analysts they will talk to at least every quarter going forward. The management teams are likely expecting their Medicaid subsidiaries to work closely with the states in which they operate to mitigate the loss of enrollment and revenues. That, in turn, creates possibilities for those that wish to ensure kids and families don't see large-scale coverage losses.