Payers Expect Enrollment to Offset Normalized Healthcare Spending

As major payers like Centene and Cigna emerge from an atypical year, they are predicting in their fourth quarter 2020 earnings reports that revenues will increase in 2021, despite utilization and healthcare spending returning to normal levels.

In its fourth quarter 2020 earnings report, Centene ended 2020 with a revenue of $111 billion, which represented 49 percent growth. Additionally, the payer added more than 10 million members--or enrollment growth of 67 percent.

Michael Neidorff, chairman, president, and chief executive officer of Centene, attributed the membership growth to the extension of the Medicaid redetermination suspension. Centene has added 1.7 million Medicaid members since March 2020, added Jeff Schwaneke, executive vice president and chief financial officer of Centene.

Neidorff also noted that the payer expects the public health emergency to continue through the end of 2021. If that is the case, cost-sharing waivers and other coronavirus-related benefits will likely be extended through the end of the year as well, including potentially extending the Medicaid redetermination suspension.

As a result, increased membership could continue in 2021, boosting revenue. Centene has found that lower utilization trends have continued in the first months of 2021, another source of higher revenue. There is also the potential for an increase in the federal medical assistance percentages (FMAP).

“We continue to expect typical utilization to remain below the historical baseline during the first half of 2021, returning to normalized levels in the second half of the year,” Schwaneke explained.

These may offset some of the negative financial impacts of the Medicare Physician Fee Schedule update—which could dent Centene’s 2021 revenue by around $200 million—and state rate actions.

Neidorff also announced a restructuring initiative that would reduce Centene’s workforce by around six percent, letting go 3,000 employees and eradicating 1,500 open positions.

“The reductions are primarily in areas where we have significant overhead from acquisitions, and where we have opportunities to leverage our size and scale to increase the efficiency,” Neidorff explained.

Affordable Care Act marketplaces will continue to see healthcare spending for coronavirus testing and treatment. The spike in these coronavirus-related costs injured Centene’s performance in 2020 with $3.6 billion associated with COVID claims, an increase of approximately $1.6 billion since the end of the third quarter.

Nonetheless, the payer was optimistic about the new year.

“We expect our marketplace business to return to the targeted margins in 2021, reflecting our continued pricing discipline,” said Schwaneke.

Centene’s revenue for 2021 is expected to land between $116.1 billion and $118.1 billion, with particular emphasis on revenue from a pharmaceutical acquisition and two Oklahoma Medicaid contracts.

Payers will also have to factor the special enrollment period into their projections for the new year. Special enrollment on the federal marketplace and several state-based marketplaces opens on February 15, 2021 and will last for three months.

“We see it as a positive,” Neidorff said of the special enrollment period. “There are 9 million people estimated to be uninsured, and we want to remind you that it's not all Marketplace. A lot of these individuals will qualify for Medicaid. And as we saw last year, that was a positive.”

Neidorff did not expect the special enrollment period to result in adverse selection for Centene. The payer tends to attract a good mix of well and risk populations, he argued.

Meanwhile, in Cigna's fourth quarter 2020 earnings report, the payer revealed that its adjusted revenue reached $160 billion in 2020, a growth of 14 percent. In the fourth quarter alone, adjusted revenues hit $30.5 billion.

The payer was targeting Medicare Advantage enrollment growth of 10 to 15 percent. Instead, it exceeded expectations by reaching 18 percent enrollment growth.

David Cordani, president and chief executive officer of Cigna, noted that almost nine in ten Cigna Medicare Advantage and prescription drug plan customers (88 percent) have enrolled in four star-plus rated plans in 2021. The payer has the highest average weighted star rating in the nation, he added.

The payer ended 2020 with a total of 16.7 million medical customers, a decline from the previous year though only a slight one of 0.5 percent.

In 2021, the payer expects to accrue $165 billion or more in revenue. This would amount to $10 billion in growth after adjusting for 2020 group revenues.

“In 2021, we expect elevated medical costs, including the impact of direct COVID-19 related costs and more normalized non-COVID utilization and we expect the impact of a gradual economic recovery on our customer base in 2021,” explained Brian Evanko, chief financial officer at Cigna. “Given these COVID-19 dynamics, we expect the primary impact to be in our U.S. Medical business.”

The payer expected that its Affordable Care Act marketplace offerings would grow but that this growth would be offset by the company withdrawing from the non-Affordable Care Act individual health insurance marketplace. Cigna projected a medical loss ratio of 81 to 82 percent, influenced by higher medical costs and the repealed health insurance tax repeal.

Cordani also pointed to three trends that are shaping healthcare in 2021: pharmacological innovations such as gene therapies and biosimilars, the integration of mental health and physical healthcare, and virtual care growth and remote monitoring.