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Oct 17, 2024

Elevance shares plummet as its Medicaid business struggles | Modern Healthcare

Elevance Health Inc. shares sank in early trading after the insurer cut its outlook for the year, signaling wider problems in the sector that sent rival insurers’ shares down. Adjusted profit for the

Elevance Health Inc. shares sank in early trading after the insurer cut its outlook for the year, signaling wider problems in the sector that sent rival insurers’ shares down.

Adjusted profit for the year will be about $33 a share, down from the earlier forecast of at least $37.20 a share, the company said Thursday in a statement.

Elevance shares plunged 12% before US markets opened. If the move holds, the shares will be set for their biggest fall since March 2020. Other insurers followed, with Centene Corp. down 7.7% and Molina Healthcare Inc. dropping 12% in early trading. All three companies provide private versions of Medicaid, the US program for low-income people.

The results show a worsening outlook for health insurers that for years have relied on government programs for growth. It surprised investors who had already braced for trouble after Elevance rival UnitedHealth Group Inc. delivered a disappointing forecast Tuesday.

Elevance’s forecast cut shows a “dire” situation for Medicaid insurers, posing a risk for second-half earnings, Stephens analyst Scott Fidel wrote in a research note. Centene and Molina are scheduled to report results next week.

Elevance blamed “unprecedented challenges” in its Medicaid business for the results. States have purged millions of people from the safety-net program since the end of the Covid-19 pandemic, and insurers have said its payments are inadequate for the medical needs of the members who remain.

Health insurers recorded years of strong profits and robust growth through the Covid-19 pandemic. Membership in Medicaid plans grew as states halted routine processes to verify that people qualified for the program. Meanwhile, many patients curtailed their medical visits for fear of catching the virus.

Both those trends began reversing last year, as people returned for surgeries and other care. Medicaid eligibility verifications resumed too. More than 14 million people exited the program since its peak in March 2023, according to tallies by health research group KFF, about a 15% drop.

Elevance has said it’s negotiating with states for higher payments and expects rates to catch up with members’ medical costs eventually. The company expects to grow adjusted earnings per share in 2025 by at least a mid-single-digit percentage range, according to a presentation Thursday.

Still, its results portend broader trouble for the sector. Beyond Medicaid, insurers are also grappling with new restrictions on payments in private Medicare Advantage plans that are cutting into profits.

Elevance’s revenue of $44.7 billion exceeded analysts’ expectations, driven by higher premiums in health benefits and more revenue from the company’s CarelonRx pharmacy benefit manager. But adjusted earnings in the quarter were $8.37 a share, missing expectations.

The company’s medical-loss ratio, a crucial gauge of the costs of care, was 89.5%, worse than Wall Street had foreseen. The company cited a “timing mismatch” between Medicaid payments and the health needs of members.

© 2024 Bloomberg L.P.

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