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 (UNKNOWN:HNT.DL), 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.
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.
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.