Centene is zigging into Obamacare's weak spots as others are zagging away from the law.
On Tuesday, just days after Anthem Inc. announced it will largely exit the Affordable Care Act's individual insurance exchanges in Virginia, Centene Corp. announced it will sell insurance in a set of 14 "bare" counties in Nevada -- areas where insurers had pulled back and weren't planning to offer Obamacare plans next year. And the insurer isn't just stepping in there: Centene has pledged to offer coverage in other states as well. In fact, owing in part to its willingness to play rescuer, only two counties nationwide are now set to lack an ACA insurance option in 2018.
If Centene, among the largest Obamacare insurers, is able to continue its streak of success, it could profit immensely from its boldness. If it doesn't and the Trump administration or Congress fail to support this market, the company could have a memorably disastrous 2018.
The exchanges have proven to be uniquely volatile. People enter and leave these markets frequently and the individual mandate hasn't been as effective at boosting healthy enrollment as the law's architects hoped, making costs difficult to predict and increasing the potential for big and unexpected losses. Last quarter, Centene credited better-than-expected performance in the exchanges for a big profit boost. But its competitor Molina Healthcare Inc. -- often touted as an ACA success story -- announced it was exiting certain markets due to large losses.
Entering bare counties is a particularly risky proposition. If the population is sicker than expected or enrollment is weak, Centene will face the full brunt of any resulting losses. And it's a particularly dangerous time to be expanding. Efforts to repeal the ACA may have failed, but the president has threatened to stop paying cost-sharing reduction subsidies that Centene and other insurers depend on. In their absence, Centene could lose millions and be forced right back out of certain markets.
Fortunately for Centene, such a move is unlikely -- particularly after the Congressional Budget Office released a report Tuesday on the impact of ending CSR subsidies. The report suggests that ending subsidies would mean 5 percent of Americans wouldn't have ACA insurance options in 2018, causing individual insurance premiums to jump 20 percent in 2018, and pushing up the federal deficit by $194 billion over 10 years. Not an easy sell in a midterm election year.
The fact that Centene has tended to succeed in the exchanges as others have struggled suggests it really may be better at this. While entering areas with little or no competition means greater exposure to potential losses, it also means unlimited pricing power, 100 percent market share, and the potential for serious profit. The company is earning the gratitude of state regulators -- which may come in handy -- and is pre-empting the possibility that states will require exchange participation for insurers that want to bid on Medicaid or Medicare contracts. The relative size of these bare counties -- there are only around 8,000 enrollees in the counties Centene is filling in Nevada -- should limit the company's downside.
Things could go badly for Centene. But in a constitutionally risk-averse industry with competitors that dwarf the insurer in enrollment and financial strength, this is the kind of move required to stand out.
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