- Health insurers CVS and Centene have been hit with decrease Medicare Advantage high quality scores on Thursday.
- The decrease scores may cut back CVS’ and Centene’s earnings per share in 2024, fairness analysts mentioned.
- They may additionally make it tougher for CVS and Centene to draw new Medicare Advantage clients.
The federal authorities on Thursday hit CVS Health and Centene with decrease high quality scores for the health-insurance plans they promote to seniors.
It’s a blow that might crush the insurers’ earnings and make it tougher for them to develop in Medicare Advantage — the red-hot personal health-plan marketplace for individuals 65 and older.
The Centers for Medicare and Medicaid Services, or CMS, charges the standard of Medicare Advantage plans annually on a 1- to 5-star scale, with one being the bottom efficiency and 5 being the best.
The scores are a giant deal for well being insurers, as a result of plans that rating 4 stars or larger obtain bonus funds from the federal authorities that they will use to edge out competitors by funding new health-plan advantages to draw extra clients. The federal authorities paid $10 billion in bonus funds in 2022, in keeping with the Kaiser Family Foundation. Plus, shoppers can see the scores whereas looking for insurance plans.
Several massive well being insurers acquired decrease high quality scores this 12 months, however CVS and Centene stumbled probably the most.
CVS, the proprietor of nationwide well being insurer Aetna, mentioned in a regulatory submitting Thursday that the share of seniors in its plans rated 4 stars or larger will plummet to 21% in 2023 from 87% in 2022, largely as a result of its largest plan with greater than 1.9 million members misplaced a star, making it ineligible for bonus funds. CVS’ inventory tumbled greater than 10 p.c on Friday.
The proportion of members in Centene’s 4-star or larger plans will drop to three% from 48% in 2022, Scott Fidel, an analyst at Stephens, estimated in a Friday analysis be aware.
CVS and Centene’s decrease high quality scores may squeeze their earnings in 2024, analysts mentioned
The decrease high quality scores may squeeze the well being insurers’ earnings in 2024, fairness analysts mentioned. Bonuses for 2023 are paid in 2024.
“CNC and CVS both experienced sharp reductions in members in 4+ STAR plans for rating year 2023, creating operational hurdles,” Fidel wrote.
Fidel estimated that the drop in high quality scores may cut back Centene’s earnings per share for 2024 by 10.5%, in keeping with the be aware. He did not present an estimate for CVS.
Analysts at Credit Suisse estimated Centene’s 2024 earnings per share might be 9.6% decrease, whereas CVS’ earnings per share may slip by 8.3%, in keeping with a Friday analysis be aware.
A CVS spokesperson mentioned the corporate has been a pacesetter in Medicare Advantage, attaining No. 1 and No. 2 positions with members in plans with 4 or extra stars for eight of the final 9 years, in comparison with rivals. He mentioned CVS’ inner member satisfaction surveys present persistently excessive outcomes.
“With our largest national PPO contract’s results based on less than 1,000 member survey responses out of nearly 2 million members — less than one tenth of one percent — we don’t believe they accurately reflect the total experience of our Medicare Advantage members,” the spokesperson mentioned.
A Centene spokesperson mentioned the corporate anticipated the decrease scores and has been taking steps to enhance them.
“As we have stated publicly this year, Centene’s new management team identified the rating issues and has aggressively implemented operational changes which we expect will deliver improved stars ratings in future years and the best possible care and services to the 1.5 million Medicare Advantage and 4.2 million Part D members we serve,” the spokesperson mentioned.
Lower scores make it tougher to compete within the crowded Medicare Advantage-market
The decrease scores may make it tougher for CVS and Centene to draw new Medicare Advantage clients.
Both insurers have invested closely in rising their Advantage footprints, as seniors age into this system at a fast tempo and select Advantage over conventional Medicare. Aetna served about 3.2 million Medicare Advantage members as of June 30, whereas Centene providers about 1.5 million.
Quality scores dropped throughout the business this 12 months. Overall, CMS mentioned about 72% of individuals will likely be in plans with 4 or extra stars in 2023, down from 90% final 12 months.
The Medicare Advantage house has turn into more and more crowded as incumbent and upstart insurers clamor for extra members. More than 28 million persons are enrolled in Medicare Advantage this 12 months, up from about 12 million a decade in the past, in keeping with the Kaiser Family Foundation.
Medicare Advantage has confirmed profitable for a lot of well being insurers, as a result of the federal government pays Advantage plans set charges — about $11,500 per particular person — to handle the care of older individuals.
