The Q4 2021 earnings reports are in, and the five largest companies in the Medicaid managed care market—CVS Health, Anthem, Centene, Molina, and UnitedHealth Group—did very well, thank you very much. CVS Health made $17.3 billion last year; Anthem, $7.5 billion; Centene, $1.8 billion; Molina, $1.0 billion; and UnitedHealth Group $24.0 billion.
Not all of these earnings from operations were attributable to Medicaid, of course. But as far as we can tell from the earnings reports, the Medicaid line of business didn’t hurt any of these companies. For those that provided this information, Medicaid revenue growth ranged from 13 percent (Centene) to 16 percent (United) to 43 percent (Molina) year-over-year. This is a continuation of the growth in Medicaid revenues these companies reported in Q2 and Q3.
The Big Five are very different animals. The differences are not just about scale (as of February 10, 2022, UnitedHealth Group has a market capitalization of $465 billion; Molina, $19 billion). For two of these companies—Centene and Molina—Medicaid managed care is the primary line of business, as measured by both enrollees and revenues. Molina’s 4.3 million Medicaid enrollees accounted for over four-fifths (83 percent) of its total enrollment and produced over three quarters ($20.5 billion, or 76 percent) of its revenues in 2021. Centene’s 15 million Medicaid enrollees represented over half (56 percent) of its total enrollment and generated two-thirds ($84.1 billion, or 67 percent) of its revenues in 2021.
For two others—Anthem and UnitedHealth Group—Medicaid beneficiaries represent considerably less than half of total enrollment, although those shares are growing. Anthem’s Medicaid enrollment (10.6 million) made up 23.4 percent of the company’s total enrollment at the end of 2021—up from 20.6 percent at the end of 2020. Anthem did not disclose its Medicaid revenues. In the case of UnitedHealthcare, one of two businesses of UnitedHealth Group, its 7.7 million Medicaid managed care enrollees accounted for 17.0 percent of its total domestic enrollment at the end of 2021, up from 15.4 percent in 2020. UnitedHealthcare’s Medicaid (“Community & State”) revenues of $54 billion represented 25 percent of domestic premium revenues.
CVS Health is not a health insurance company, although it does own a health insurer, Aetna, which accounted for roughly a quarter (24.7 percent) of the company’s total revenues in 2021. Aetna has a Medicaid managed care product, but it is smaller than its Commercial Insured and Medicare Advantage products. Aetna’s Medicaid enrollment at the end of 2021 was 2.3 million, or 9.8 percent of its total enrollment, up from 9.0 percent in 2020. The CVS Health earnings statement does not present Aetna’s Medicaid revenues.
What the Big Five have in common is a large presence in the Medicaid market. Taken together, they enrolled 39.9 million Medicaid beneficiaries at the end of 2021. This was an increase of 5.1 million, or 14.8 percent, from 2020 in risk arrangements. One reason is the continuous enrollment requirement tied to the coronavirus Public Health Emergency (PHE), which contributed to an increase in Medicaid enrollment overall of 3.7 million, or 5.1 percent during the first seven months of 2021 alone. In the 40 states (and the District of Columbia) that contract with MCOs, managed care enrollment followed suit. A rising tide, it seems, lifts all boats.
Sometime this year we are likely to learn what happens when the tide goes out. Currently, the PHE is scheduled to expire on April 15. If it is not extended and the current law does not change, states will begin disenrolling ineligible individuals on May 1. The problem, of course, is that in the process of redetermining eligibility—whenever that begins—many eligible individuals will be disenrolled for procedural reasons and it will take them much longer than it should to reenroll, especially if the process is not properly monitored. CMS has advised states on how Medicaid MCOs can potentially help enrollees complete the redetermination process and minimize loss of coverage for procedural reasons.
The MCOs certainly have an incentive to do so. On each of Q4 earnings calls, financial analysts raised with management the question of how the resumption of redeterminations would affect the company’s Medicaid enrollment in 2022. (The analysts are trying to assess the risks that the unwinding of the PHE poses for the companies’ Medicaid revenues, Medicaid margins, and ultimately earnings per share). Only Molina provided an estimate of how much its Medicaid enrollment would decline (from 4.3 to 4.1 million, or about 200,000 fewer people enrolled). Aetna/CVS Health stated in its Form 10-K that it anticipates “membership declines in its Medicaid products” in 2022 but did not specify a number. UnitedHealthcare management said it would “pick up our fair share” of individuals disenrolled from Medicaid in their commercial products; Anthem’s said it expected to get a “commensurate share.” Centene’s management made the case that it was well-positioned to transition these individuals into their Marketplace products.
As the Table makes abundantly clear, transparency about Medicaid lines of business is not a defining characteristic of Big Five earnings reports. Only three of the companies provide Medicaid revenues, and only one, Molina, discloses the amount it earned ("medical margin") on its Medicaid line of business ($2.3 billion on revenues of $20.5 billion). There has, however, been an unexpected—but very welcome—development on the transparency front in this round of reports.
Until now, each Big Five company—other than Molina—provided only one consolidated medical loss ratio (MLR) for all their different lines of business. The companies have different names for this metric—Benefits Expense Ratio (Anthem); Health Benefits Ratio (Centene); Medical Benefits Ratio (CVS Health), Medical Care Ratio (UnitedHealth Group); Medical Cost Ratio (Molina)—but they all measure how much is paid out for medical care for enrollees as a percentage of the amount of premiums received for those enrollees. (To further confuse matters, these straightforward ratios differ from the more complicated Medicaid MLR). The lower the ratio, the less of the premium that is paid out for health care, and the more the insurer retains for salaries and other administrative expenses and for returns to investors. Combining the results for all product lines—Commercial, Medicare Advantage, Medicaid, Marketplace—makes it impossible to tell how a company is performing in any particular line.
That has now changed at least a little. In its Q4 2021 earnings report, Centene presents a Health Benefit Ratio by product for 2021: Medicaid (88.1 percent); Commercial (86.6 percent); and Medicare (87.1 percent). Molina has been providing this information since at least 2015 (in fact, it used to provide Medical Cost Ratios, along with enrollment premium revenues, and margins, for each of its Medicaid MCOs by state). The one or two percentage point differences between these ratios may seem insignificant, but they matter a lot to the financial analysts advising institutional investors, which means they matter a lot to a management whose company’s performance the analysts are evaluating. Of course, both investors and management would be even happier if all of medical costs as a percentage of premium were even lower to allow more room for margin.
For bonus points. Centene’s earnings statement has also broken out the company’s Medicaid enrollment into two subpopulations: “Traditional Medicaid” (including TANF, Medicaid expansion, CHIP, Foster Care and Behavioral Health enrollees) (13.3 million in 2021) and “High Acuity Medicaid” (including elderly, individuals with developmental disabilities, and dual eligible) (1.7 million). It even provides a breakout of Medicaid expansion enrollees (2.5. million), Marketplace enrollees (2.1 million), and dual eligibles (1.2 million). We know that Centene’s CEO is retiring; is this adventure in transparency a parting gift? Or is it just catching up with Molina (even though Molina’s earnings statements are now less transparent than they once were).
Whatever the reason, it’s a very welcome development. Perhaps the Big Five could compete on transparency. CVS Health, Anthem, and UnitedHealth Group could start by filling in their blanks in the Table. Then they could follow Molina and Centene's lead by providing MBRs, BERs, and MCRs, respectively, for all their Medicaid, Medicare Advantage, and Marketplace lines of business. And for all of the Big Five, how about a breakout of the number of Medicaid enrolled children 18 and under—the most numerous Medicaid eligibility group—for both the parent companies and their subsidiary MCOs? If this is too much to ask in an earnings statement, what about posting the information on the parent company website?
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