Highlights include:
- Membership increased 55,000 members, or 3.2%, to approximately 1.8 million from the second quarter of 2009.
- Total revenues were $1.3 billion, a 1.0% increase over the second quarter of 2009.
- Health benefits expenses were 87.5% of premium revenues.
- Selling, general and administrative expenses were 6.3% of total revenues.
- Cash flow provided by operations was $72.6 million for the three months ended September 30, 2009.
- Unregulated cash and investments were $277.2 million as of September 30, 2009.
- Medical claims payable as of September 30, 2009 totaled $550.1 million compared to $563.0 million, as of June 30, 2009.
- The Company repaid the remaining $18.0 million of outstanding debt under its Credit Agreement and the debt to total capital ratio decreased to 19.8%, as of September 30, 2009, from 20.8%, as of June 30, 2009.
- The Company repurchased approximately 1.4 million shares of its common stock during the third quarter for $34.3 million.
- On August 28, 2009, the Company notified the Florida Agency for Health Care Administration of its intent to exit Broward County, effective December 1, 2009, for the Temporary Aid to Needy Families (TANF) Medicaid population.
- On October 15, 2009, the Company notified the State of Ohio of its intent to exit the Aged, Blind and Disabled (ABD) program in the Southwest Region, effective in the first quarter of 2010. The Company will continue to provide services in the Southwest and West Central regions of Ohio for the TANF Medicaid population.
- On October 23, 2009, the Company settled litigation regarding the purchase of certain assets related to the New Jersey Medicaid business of University Health Plans, Inc. (UHP). Under the terms of the settlement, the parties dismissed the litigation and the Company's New Jersey subsidiary will purchase certain UHP assets. The Company expects the purchase, which is subject to regulatory approval, to close during the first quarter of 2010.
Carlson continued, "We believe the H1N1 flu, like the recession, will eventually fade. Over the longer term, we believe that there are a number of reasons to feel good about our future, including the sizable expansion plans in healthcare reform and the ability to improve the delivery of long-term care services. We believe that AMERIGROUP is very well-positioned to capitalize on these opportunities."
Premium Revenues
Premium revenues for the third quarter of 2009 increased 20.2% to $1.3 billion compared to $1.1 billion in the third quarter of 2008. Sequentially, premium revenues increased $14.1 million, or 1.1%, compared with the second quarter of 2009. The sequential increase primarily reflects membership gains in the TANF population across most markets partially offset by increased accruals for the experience rebate in Texas.
In October, the Company received final confirmation of its rate increase in Georgia, which is retroactive to July 1, 2009. The retroactive value of approximately $3.0 million was not booked in the third quarter of 2009. The Company expects to recognize the retroactive portion of the rate increase associated with the third quarter in the fourth quarter of 2009.
Investment Income and Other Revenues
Third quarter investment income and other revenues were $5.3 million versus $17.6 million in the third quarter of 2008 and compared to $6.5 million in the second quarter of 2009. Investment income declined slightly on a sequential basis due to a decrease in yields.
Health Benefits
Health benefits expenses, as a percent of premium revenues, were 87.5% for the third quarter of 2009 versus 82.0% in the third quarter of 2008, and compared to 85.9% in the second quarter of 2009.
The third quarter health benefits ratio is elevated due to ongoing increases in outpatient medical costs. As the Company discussed at its September 2009 investor day, outpatient costs began increasing at higher trend rates relative to historical experience in the first quarter. As expected, the higher trends appear to have continued into the third quarter. Some of the primary drivers include increases in emergency room services, ambulatory surgery and physician services. In contrast, inpatient hospital costs have remained stable and within the Company's expected range.
In addition to higher general trends in outpatient costs, the Company believes that the health benefits ratio was elevated further in the third quarter due to a significant spike in flu-related activity that primarily impacted the Company's Medicaid and CHIP members. As health officials have noted, the H1N1 virus is particularly virulent among children, pregnant women and other high-risk population groups, and this demographic represents approximately 87% of the Company's 1.8 million members.
Based on a combination of indicators, such as prescription information, claims paid for services delivered in September, and various public health statistics, the Company believes that the impact from the H1N1 flu accelerated in a pronounced fashion during September. While the precise quantification of the flu impact in the third quarter remains highly estimated at this point due to the normal lag time in claim payments, information available to the Company indicates flu is a significant contributor to the upward movement in the health benefits ratio.
Additionally, the Company did not record revenue during the third quarter for the annual rate increase in Georgia, as noted in the Premium Revenues section above. This contributed to a higher health benefits ratio than otherwise would have been the case.
The Company experienced favorable reserve development across most markets in the third quarter. However, the impact to the health benefits ratio from the favorable reserve development was neutralized by increased accruals for the Texas experience rebate associated with prior periods, as noted in the Premium Revenues section above.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were 6.3% of total revenues for the third quarter of 2009, versus 10.2% in the third quarter of 2008, and compared to 7.5% for the second quarter of 2009. The selling, general and administrative expense ratio decreased sequentially, due to a reduction in variable compensation accruals as a result of lower operating results.
Premium Taxes
Third quarter premium taxes were $38.3 million versus $23.9 million for the third quarter of 2008, and compared to $34.6 million in the second quarter of 2009. The sequential increase in premium taxes was primarily due to an increase in the premium tax rate in Tennessee, effective July 1, 2009.
Balance Sheet and Cash Flow Highlights
Cash and investments at September 30, 2009 totaled $1.4 billion of which $277.2 million was unregulated.
During the quarter, the Company repurchased approximately 1.4 million shares of its common stock for $34.3 million under the Company's ongoing stock repurchase program. In addition, the Company repaid the remaining $18.0 million of outstanding debt under its Credit Agreement. The debt to total capital ratio decreased to 19.8%, as of September 30, 2009, from 20.8%, as of June 30, 2009.
Medical claims payable as of September 30, 2009 totaled $550.1 million compared to $563.0 million as of June 30, 2009. Days in claims payable represented 45 days of health benefits expense, which is within the expected range of 45 to 55 days, compared to 46 days in the previous quarter. Claims processing speed increased slightly during the quarter, further reducing claims inventory levels. This change was commensurate with the one day decline in days in claims payable.
Included on page 10 is a table presenting the components of the change in medical claims payable for the nine months ended September 30, 2009 and the year ended December 31, 2008.
Cash Flow Highlights
Cash flow provided by operations totaled $106.6 million for the nine months ended September 30, 2009 and $72.6 million for the three months ended September 30, 2009.
Outlook
The Company withdrew its annual earnings guidance for the current year on October 26, 2009 due to the wide range of medical cost outcomes that may occur in the fourth quarter.
Third Quarter Earnings Call
AMERIGROUP senior management will discuss the Company's third quarter results on a conference call Friday, October 30, 2009 at 7:30 a.m. Eastern Time (ET). The conference can be accessed by dialing 866-260-3161 (domestic) or 706-679-7245 (international) approximately ten minutes prior to the start time of the call. A recording of the call may be accessed by dialing 800-642-1687 (domestic) or 706-645-9291 (international) and providing passcode 34392568. The replay will be available shortly after the conclusion of the call until Friday, November 6, 2009 at 11:59 p.m. Eastern Time. The conference call will also be available through the investors' page of the Company's web site, www.amerigroupcorp.com, or through www.earnings.com. A 30-day replay of this webcast will be available on these web sites beginning approximately two hours following the conclusion of the live broadcast earnings conference call.
About AMERIGROUP Corporation
AMERIGROUP Corporation and its subsidiaries help those in publicly funded healthcare programs by ensuring that these individuals enter an organized system of care and a true medical home. Serving approximately 1.8 million members in 11 states nationwide, AMERIGROUP accepts all eligible people regardless of age, sex, race or disability. The Company's product offerings do not utilize any individual underwriting nor deny coverage due to pre-existing medical conditions. AMERIGROUP is dedicated to offering real solutions that improve healthcare access and quality for its members, while proactively working to reduce the overall cost of care to taxpayers. For more information and real story examples of these solutions, please visit www.amerigroupcorp.com
Forward-Looking Statements
This release is intended to be disclosure through methods reasonably designed to provide broad, non-exclusionary distribution to the public in compliance with the Securities and Exchange Commission's Fair Disclosure Regulation. This release contains certain ''forward-looking'' statements related to medical costs, our future and our position to capitalize on certain opportunities, which are subject to numerous factors, many of which are outside of our control, including the severity of the flu season and the impact of the H1N1 virus, medical expense trend levels, our ability to manage our medical costs generally, seasonality of health benefits expenses, the levels and amounts of membership, revenues, organic premium revenues, rate increases, operating cash flows, health benefits expenses, selling, general and administrative expenses, days in claims payable, income tax rates, cash balances, earnings per share, net income growth, healthcare reform, interest rates, and our ability to improve the delivery of long-term care services. These statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected or contemplated in the forward-looking statements. These risks and uncertainties include, but are not limited to, national, state and local economic conditions, including their effect on the rate-setting process and timing of payments; the effect of government regulations and changes in regulations governing the healthcare industry; changes in Medicaid and Medicare payment levels and methodologies; liabilities and other claims asserted against us; our ability to attract and retain qualified personnel; our ability to maintain compliance with all minimum capital requirements; the availability and terms of capital to fund acquisitions and capital improvements; the competitive environment in which we operate; our ability to maintain and increase membership levels; demographic changes; increased use of services, increased cost of individual services, epidemics, pandemics; the introduction of new or costly treatments and technology; new mandated benefits; insured population characteristics and seasonal changes in the level of healthcare use; our ability to enter into new markets or remain in existing markets; our inability to operate new products and markets at expected levels, including, but not limited to, profitability, membership and targeted service standards; changes in market interest rates or any disruptions in the credit markets; catastrophes, including acts of terrorism or severe weather; and the unfavorable resolution of new or pending litigation.
Investors should also refer to our annual report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission ("SEC") and subsequent quarterly reports on Form 10-Q and current reports on Form 8-K filed with or furnished to the SEC, for a discussion of certain known risk factors that could cause our actual results to differ materially from our current estimates. Given these risks and uncertainties, we can give no assurances that any forward-looking statements will, in fact, transpire and, therefore, caution investors not to place undue reliance on them. We specifically disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.
SOURCE AMERIGROUP Corporation
