3 Stocks Poised to Profit from This Medicaid Mess

More than 900,000 Californians await Medicaid approval, suggesting the state's private medicaid insurers Molina (MOH), Health Net (HNT), and Centene (CNC) may see sales and earnings climb.

May 7, 2014 at 6:30PM

More than 1.9 million Californians had signed up for Medicaid coverage thanks to Medicaid expansion under Obamacare through March.

That Medicaid enrollment outpaced the 1.4 million Californians who signed up for private insurance through the state-run exchange and has been a boon to private Medicaid insurers Molina Healthcare (NYSE:MOH), Health Net (NYSE:HNT), and Centene (NYSE:CNC), all of which have contracts with Medi-Cal.

Those companies may see even greater benefits from their California Medicaid business going forward, given that Medi-Cal is currently knee-deep in digesting more than 900,000 Medi-Cal applications. Given that backdrop, let's take a closer look at the three companies' California connection. 

MOH Chart

MOH data by YCharts

Overcoming delays
California's Department of Health Care Services reportedly focused primarily on getting its state-run exchange up to snuff when Obamacare launched last fall because Medicaid enrollment is ongoing, but open enrollment in private insurance was slated to close at the end of March.

That meant software used to help determine Medicaid eligibility didn't go live until the middle of January, months after the exchange kicked off.

Now that open enrollment for private insurance has closed, the agency is shifting its focus back to Medi-Cal, and that means enrollment in the state's Medicaid plan will grow even more this quarter. According to reports, more than 900,000 applications await confirmation of Medicaid eligibility, including 100,000 applications that were filed in April. 

As many of those applications are approved, newly enrolled members will provide revenue tailwinds for Molina, Health Net, and Centene, since these three companies run enrollment based Medicaid programs for Medi-Cal.

Capturing the opportunity
Molina, Health Net, and Centene have already reported first quarter earnings, and results at the three companies were impressive.

At Molina, Medicaid expansion in California (which represents roughly 20% of Molina's 2.1 million Medicaid members), New Mexico, and Washington spiked revenue by $200 million year over year in the first quarter. That helped Molina's total first quarter revenue jump 21% to $2.1 billion. 

The revenue growth came from Molina's adding 133,000 new members to its Medicaid plans during the quarter, 47,000 of whom are Californians. 

But Medicaid growth isn't just helping Molina's top line. It's boosting its bottom line, too. In the first quarter, Molina reported that California enrollment growth, higher per-member per-month premiums, and a lower-than-companywide medical-cost ratio for Californians, led to medical margin expansion of 40% in the state to $12.3 million. 

While Medi-Cal is important to Molina, its even more important to Health Net given that it accounts for virtually all Health Net's 1.3 million Medicaid members, and 45% of members across all its products. 

As a result, expansion increased Health Net's Medicaid membership by 18% in the first quarter, resulting in Medicaid revenue improving from $596 million last year to $862 million this year, and boosting Health Net's total revenue nearly 9% to $3 billion.

Over at Centene, the company is already seeing solid membership growth despite only recently entering the California market last November.

So far, 118,000 people have enrolled in Centene's California plans, which are available in 18 rural counties. That's up 22% from December.

The new California business, as well as new Medicaid contracts in New Hampshire, helped Centene's revenue jump from $2.4 billion last year to $3.4 billion in the first quarter.

And those new members are likely to boost profit over time as membership climbs. Currently, Centene's cost to provide care to members in new markets is over 93% of premiums collected. That's well above the 88% ratio for existing markets and suggests plenty of profit potential once the company scales up.

Fool-worthy final thoughts
In states that have chosen to implement Obamacare, more than 3 million people have signed up for coverage. Many of those new members are Californians, and that has the state's private Medicaid insurers forecasting big earnings growth this year.

Molina expects 2014 earnings per share of between $4 and $4.50, up more than 35% from 2013. Health Net is looking for EPS of at least $3 per share this year, which would be a nice pop from the $2.12 it earned last year. And Centene expects to generate between $3.60 and $3.90 in EPS this year, up from $2.95 in 2013. Given those forecasts, California's Medicaid market is likely to be an important driver of profit for these companies over the coming year.

While Medicaid insurers are impressive, this 1 stock may be even better
Give us five minutes and we'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with amazing potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303%! You don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Todd Campbell owns shares of Molina Healthcare. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information