(Bloomberg) — Shares of Elevance Health Inc. tumbled the most in four years after the insurer cut its annual guidance, signaling broader industry problems that sent shares of rival insurers lower.
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Adjusted earnings for the year will be about $33 per share, down from its previous forecast of at least $37.20 per share, the company said in a statement Thursday.
Shares of Elevance fell as much as 20% as markets opened in New York, the biggest intraday drop since March 2020. Other insurers followed suit, with Centene Corp. fell as much as 10% and Molina Healthcare Inc. as much as 11% fell. All three companies offer private versions of Medicaid, the U.S. program for low-income people.
The results show a deteriorating outlook for health insurers that have for years relied on government programs for growth. It surprised investors who had already been bracing for trouble after Elevance rival UnitedHealth Group Inc. made a disappointing prediction on Tuesday.
The forecast downgrade at Elevance shows a “dire” situation for Medicaid insurers, posing a risk to second-half earnings, Stephens analyst Scott Fidel wrote in a research note. Centene and Molina will report results next week.
Elevance’s challenges in Medicaid are “time sensitive,” CEO Gail Boudreaux said on a call with analysts. The company received the largest Medicaid rate increases in a decade, she said, but they were not enough to cover medical costs that were rising three to five times faster than normal.
Medicaid relaxed
Elevance blamed “unprecedented challenges” in its Medicaid business. States have excluded 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 remaining members.
Health insurers posted years of strong profits and robust growth due to the Covid-19 pandemic. Membership in Medicaid plans grew as states halted routine processes to verify people’s eligibility for the program. Meanwhile, many patients have curtailed their medical visits for fear of contracting the virus.
Both trends began to reverse last year, as patients returned for surgeries and other care. Medicaid eligibility verifications have also resumed. More than 14 million people have left the program since its peak in March 2023, a decline of about 15%, according to data from health research group KFF.
Elevance has said it is negotiating with states for higher payments and expects the rates will eventually catch up with members’ medical costs. The company expects adjusted earnings per share to grow by at least a mid-single-digit percentage through 2025, according to a presentation Thursday.
That’s lower than the company’s long-term target of at least 12% annual growth in adjusted earnings per share. It reflects the assumption that Medicaid payment problems will persist into 2025, Chief Financial Officer Mark Kaye said on the call.
The Medicaid business is expected to be profitable in 2024, although remaining below target margins, Kaye said.
Broader problems
In addition to Medicaid, insurers are also grappling with new restrictions on payments in private Medicare Advantage plans that are cutting profits. Elevance said it expects the number of program members in plans with high quality ratings to decline in 2025, which could further limit revenues in 2026.
Elevance’s revenue of $44.7 billion exceeded analyst expectations, driven by higher premiums for health benefits and more revenue from the company’s CarelonRx pharmacy benefits manager. But adjusted earnings in the quarter were $8.37 per share, falling short of expectations.
The company’s medical claims ratio, a crucial measure of healthcare costs, was 89.5%, worse than Wall Street expected. The company cited a “mismatch in timing” between Medicaid payments and members’ health needs.
(Updates with earnings call comments starting in sixth paragraph.)
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