Quote of the Day: Scott Fidel, Deutsche Bank

October 23, 2012

Commenting on Medicaid plan Centene Corp. (St. Louis), which reported an 87% decline in third-quarter profits largely because of poor financial results in Kentucky:

Centene’s third quarter results provide a vivid example of how outsized membership growth can often lead to severe margin challenges if the business is not appropriately priced.


DC Chartered in Receivership Pending Sale

October 23, 2012

In the market for a Medicaid plan?  D.C. Chartered Health Plan, which is the largest Medicaid plan in Washington, DC, with 110,000 members, has been placed in receivership by District insurance regulators pending a sale of the company.  

The proximate cause: failure to meet a 90-day deadline issued by the  DC Dept. of Insurance in June instructing the company to raise capital or find a buyer in light of a 2011 loss of $15 million. 

It probably doesn’t help that the home of D.C. Chartered’s owner Jeffrey Thompson was raided by federal agents in April as part of a city campaign finance investigation.  Furthermore, an ongoing audit of D.C. Chartered’s books has turned up financial irregularities.  In short, what we have here is a mess.

Regulators say there will be no interruption to coverage for plan members.  D.C. Chartered’s five-year Medicaid contract with the district expires in 2013, when the district expects to have completed a rebid for the entire contract.  Other Medicaid plans serving D.C. include UnitedHealth and MedStar.

UnitedHealth’s Medical Cost Trends Ease

October 17, 2012

UnitedHealth Group (Minnetonka, MN) has posted blow-out third-quarter financial results.  But the big news is the company lowered its full-year 2012 medical cost trend projection to between 5% and 6%–a 50 basis point reduction from its prior expectation.  UnitedHealth chief financial officer Dan Schumacher summed it up during a conference call with investors.

Stepping into 2012, we did have an expectation of higher utilization as compared to 2011. We are actually seeing that, although I will tell you it is more moderate than we thought. We saw a surge in the first quarter utilization, and then that moderated from the second quarter forward….We are seeing a little better inpatient….We are seeing a little bit more moderate pharmacy utilization, particularly in the space of Hep C….Outpatient is actually a little bit higher than our expectation.

The company continues to expect commercial risk membership to be down as it maintains pricing discipline in a competitive marketplace, officials say.  Commercial risk gross margin will also feel the squeeze.

Commercial Risk Plans Post 84.2% MCR in 2011, Citi Analysis Shows

October 15, 2012

Solid analysis from Citi showing commercial risk health plans posted a combined medical cost ratio of 84.2% in 2011. MCR in the small group market was better than average at 79.9%, while individual came in at 80.6%, and large group was the highest at 86.2%.

The plans in the analysis represent about 60 million members in 25 states and account for $260 billion in annual premiums. Combined underwriting margin was 2.6% in 2011 for commercial risk plans. Citi warns, however:

We don’t really buy the underwriting margins reported by the plans. For example, in the small group product, the plans reported an overall MLR of less than 80%, and an underwriting margin of only 3%, which doesn’t make sense. The issue is probably that many plans don’t report true SG&A in the stat filings, but rather, a management fee that is paid to the parent company.

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