Amerigroup, Centene, Molina Are Big Texas Medicaid Winners
August 02 2011 - 12:08PM
Dow Jones News
Medicaid insurers Amerigroup Corp. (AGP), Centene Corp. (CNC)
and Molina Healthcare Inc. (MOH) were big winners in a closely
watched contest for business in Texas that could add billions in
new revenue for the industry.
The Texas wins helped some companies regain ground Tuesday after
slumping in recent days on concerns about pressure on premiums and
the state of Georgia taking back money after record-keeping
problems caused overpayments. Shares of Amerigroup--which dropped
29% between Friday and Monday after it disclosed the Georgia
issues--recently traded up 4.2% to $50.09.
Centene rose 3% to $32.55, while Molina slipped six cents to
$22.13.
"The Texas announcement will remind the market that Medicaid is
a growth industry, and despite the vicious stock movements
recently, the overall thesis of these plans doubling revenue
between now and 2014 hasn't changed," Citigroup analyst Carl
McDonald said.
Amerigroup, Centene and Molina could pick up the most new
business in Texas, which announced on Monday tentative awards to
several public and private health firms that will play an expanding
role in providing Medicaid coverage for the poor. Bigger,
diversified insurers UnitedHealth Group Inc. (UNH) and Aetna Inc.
(AET) also won new business, but not as much, according to analyst
estimates, while nonprofits also picked up new members.
HealthSpring Inc. (HS) also added a modest amount of new
business, analysts estimated.
The state said insurers will start providing service in expanded
areas on March 1 next year. The awards are subject to working out
final contracts with the state.
Analysts' initial estimates varied, but they generally saw big
potential revenue gains for the Medicaid insurers. Citigroup's
McDonald, for example, estimated Centene will add $1.1 billion
while Amerigroup adds $1 billion and Molina adds $625 million.
Stifel analyst Thomas Carroll had similar estimates for
Amerigroup and Molina, but estimated $666 million in added revenue
for Centene. He said estimates are preliminary, since rates are not
yet final. He also upgraded his rating on Amerigroup to buy from
hold
WellCare Health Plans Inc. (WCG) was surprisingly excluded from
the market expansion, Carroll added, though he acknowledged that
"there is plenty of future Medicaid business to go around."
The Texas Medicaid awards follow wins in Louisiana last week for
Amerigroup, Centene and UnitedHealth and wins earlier in July in
Kentucky for WellCare, Coventry Health Care Inc. (CHV) and
Centene.
Among the Texas winners, Centene reiterated its earnings
guidance for 2011, which it said incorporates start-up costs
associated with the Texas award.
The big managed-care companies didn't fare as well in Texas as
the Medicaid-specialized firms, though McDonald estimated about
$489 million in added revenue for United and $28 million for Aetna.
He thinks WellPoint Inc. (WLP), meantime, lost $65.6 million in
revenue there.
Their performance raises the question "of whether the Medicaid
M&A strategies of these companies need to evolve before they
miss out on one of the few significant growth opportunities in the
industry," McDonald said.
WellPoint shares recently traded down 1.7% to $64.35 while Aetna
traded down 1.9% to $39.55 and UnitedHealth slipped 2.2% to
$46.96.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728;
jon.kamp@dowjones.com
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