(Bloomberg) — Elevance Health Inc. shares tumbled the most in four years after the insurer cut its annual outlook, signaling wider problems in the sector that sent rival insurers’ shares down.
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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 as much as 20% when markets opened in New York, their biggest intraday fall since March 2020. Other insurers followed, with Centene Corp. down as much as 10% and Molina Healthcare Inc. dropping as much as 11%. 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.
The forecast cut at Elevance 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’s challenges in Medicaid are “time-bound,” Chief Executive Officer Gail Boudreaux said on a call with analysts. The company got its biggest Medicaid rate hikes in a decade, she said, but they weren’t enough to cover medical costs rising three to five times faster than usual.
Medicaid Unwinding
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 patients 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.
That’s lower than the company’s long-term target of at least 12% annual adjusted earnings-per-share growth. It reflects the assumption that Medicaid payment issues will persist in 2025, Chief Financial Officer Mark Kaye said on the call.
The Medicaid business is expected to be profitable in 2024, though below target margins, Kaye said.
Broader Trouble
Beyond Medicaid, insurers are also grappling with new restrictions on payments in private Medicare Advantage plans that are cutting into profits. Elevance said it expects the number of its program members in plans with high quality ratings to decline in 2025, which could further crimp revenue in 2026.
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.
(Updates with comments from earnings call from sixth paragraph on.)
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