Medicare Business Expected to Drive WellCare Health Plans’ Margin Growth


May. 18 2017, Updated 7:37 a.m. ET

Medicare business

In 1Q17, WellCare Health Plans’ (WCG) Medicare Health Plans business reported revenues close to $1.1 billion, which represents year-over-year (or YoY) growth of ~12.4%. The total number of Medicare members served by the company also rose ~9.2% YoY and reached 356,000 at the end of 1Q17.

The company’s medical benefit ratio (or MBR) for its Medicare business in 1Q17 was ~83.0%, which is an improvement of approximately 160 basis points on a YoY basis.

Since 2015, WellCare Health Plans has focused on revenue and margin growth of its Medicare business. The company developed its 2017 bid strategy to achieve these long-term targets.

The company has also improved its marketing and sales strategies, as well as its deployed processes. This has boosted the overall retention rate of existing Medicare members as well as the new enrollment rate for the company’s Medicare plans.

If these trends continue in the remaining quarters of 2017, it could have a favorable impact on WellCare Health Plans stock as well as the iShares Russell MidCap ETF (IWR). WellCare Health Plans makes up about 0.12% of IWR’s total portfolio holdings.

The above diagram shows the states in which WellCare Health Plans offers its Medicare services. After completion of the Universal American acquisition, the company’s Medicare membership reached 475,000 in 17 states.

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Market opportunity

Currently, there are around 19.7 million members enrolled in Medicare Advantage (or MA) plans. However, this implies a penetration rate of only 34%. The underpenetrated nature of the MA segment has attracted multiple health insurance companies such as UnitedHealth Group (UNH), Humana (HUM), WellCare Health Plans, and Anthem (ANTM) to this business.

In the final article in this series, we’ll discuss WellCare Health Plans’ earnings per share (or EPS) projections for 2017 in greater detail.


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