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Happy Tuesday, Hospitalogists! After gobsmacking you with about 100 links in last Thursday's send, today's newsletter is focused on Centene, its investor day, and broader themes around Marketplace, Medicaid, and Medicare opportunities. Enjoy the brief refuge from my relentless onslaught of healthcare happenings. |
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CENTENE INVESTOR DAY OVERVIEW |
Centene's Investor Day Slides had some interesting intel around how they're thinking about the new administration and policy discussions, considering practically all of Centene's revenues stem from government sources. I love investor days because they are essentially biased presentations and dialogue around how you should absolutely, unequivocally invest all of your cash in that organization as an investor, and so it presents the absolute bull case for the company and the spaces it operates within. For Centene, those spaces are Medicare Advantage, Medicaid, and Marketplace plans: - Medicaid: Tapping into the more complex duals population (12M individuals, 10M of which Centene has access to)
- Marketplace & ICHRA: Growing Marketplace presence (4.5M members today and $30B in revenue expected for 2025); Disrupting employer-sponsored health insurance coverage with ICHRA, an extremely small but promising market - 300,000 employees with ICHRA plans today
- MA & PDP: Rebuilding its Medicare book of business WellCare ($30B in revenue expected for 2025; breakeven profitability in 2027 with upside from there)
- Centene expects to generate $154B to 156B in premium revenues ($166.5B to $169.5B overall), 55% of which comes from its Medicaid book of business.
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On the medical management side, Centene expects a benefits ratio of 88.4% to 89.0% with some helpful commentary on slide 43. |
About those Subsidies… Centene's commentary around the enhanced ACA subsidies (APTC - sigh) was interesting too, highlighting 3 paths in 2025: - Gov't expands them by 10 years - $335B
- Cap the subsidy to 400% of the federal poverty level (currently uncapped)
- Eliminate the enhanced subsidy entirely
Centene and other industry folks execs think entire elimination of the subsidies is foolhardy and unlikely given recent bipartisan support of the ACA (and Medicaid expansion) plus a very small Republican Congressional majority, along with the potential impact of ACA subsidy reduction on Republican states: - The marketplace now covers over 20 million Americans. Of those 20 million Americans, 10 million reside in Texas, Georgia, Florida, Mississippi, Tennessee and South Carolina alone. As we've had conversations over the past year, Republican governors and state legislators are overwhelmingly supportive of the enhanced advanced premium tax credits, which are better known as eAPTCs, that have been a significant factor in the individual market's growth and stability.
- …for Republican states who have not yet expanded Medicaid, it would be outsized...Consider the following. In Florida, there are 4.1 million people enrolled in individual marketplace insurance plans. 98% of them rely on tax credits to make that insurance affordable. In Louisiana, where the median household income is just over $45,000 per year and 97% of members enrolled in the marketplace receive a subsidy, removing the subsidy for families at 300% of the FPL could increase their net premiums by almost 900%.
Nevertheless, the firm estimated a 20-30% impact to its Marketplace enrollment were subsidies to expire. And never forget this administration could try to change…just about anything. But the most likely path forward is scenario two - some form of modification to the subsidies. Regardless, Centene was quick to note its performance through multiple regimes as Big Government results in Big Healthcare: |
ICHRA & Marketplace Growth Here's the general, very high-level Centene thesis on ICHRA: - Market Opportunity: As baby boomers transition to Medicare, younger consumers want more personalized healthcare choices, similar to how 401(k)s transformed retirement benefits
- Cost Benefits: Employers face 7-9% cost increases from providers and pharmaceuticals and are likely to look for creative solutions in 2025+
- Market Size: Potential large addressable market with 62 million Americans in small group health insurance and 170 million in the full commercial group market
- Current Progress: Centene launched ICHRA programs in 6 states during open enrollment (Partnership with Thatch)
Centene characterized ICHRA and the marketplace growth (and therefore healthier risk pools for now) a potential 'disruptor of the employer group market:' |
And some compelling data points to back up its business, like the incredible growth in Marketplace enrollment on the back of those enhanced subsidies. As healthier people entered the ACA, risk pools balanced out a bit. Look at that growth in the last 2 years alone: |
Bottom line here is that for Centene (and Oscar), they'll rely on Marketplace growth as a key investment narrative in 2025. Bigger Picture Putting it all together, growth levers for Centene include the following: - Manage Medicaid patients better - engage with them, work to manage the medical expense of complex populations
- Grow its presence in the Marketplace and leverage ICHRA as a wedge into the employer sponsored insurance market, potentially disrupting the status quo (something Oscar is also trying to achieve to hit 20% revenue growth and ~5% operating margins)
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- Improve Star ratings in its MA plans and align growth strategy around dual eligible plans; get specialty drug and other utilization under control
- "…we have 2 exciting growth opportunities that sit right on top of our core platform of Medicaid, Medicare and Marketplace. These are duals and ICHRA." - Sarah London, CEO & Director Centene
Headwinds: Of course any bear case for Centene - and other players in these arenas - would include: - End of ACA subsidies;
- Re-emergence of skinny health plans sapping away healthy Marketplace members and disrupting risk pools;
- ICHRA not gaining traction among employers (or, as ICHRA gains traction, providers opting out of ACA plans);
- Trump Administration crackdown on insurance practices;
- Meddling with Medicaid (block grants, work requirements, public charge); and
- Out of control utilization dynamics (aging demographics pursuing elective surgeries, younger people with chronic or complex conditions, rise in specialty drug utilization as a result of the Inflation Reduction Act, GLP-1 long term utilization trends)
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Random personal anecdotes and musings from me |
See ya in Austin, Clemson. The wife and I are headed down for the game (our first home game in 2 years)! If you're around, would love to say hello. |
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Thanks for the read! Let me know what you thought by replying back to this email. — Blake |
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