Shares in several large managed care insurers declined in recent weeks amid a difficult earnings season marred by high costs associated with government subsidized plans.
A combination of high costs associated with Medicare Advantage — expanded versions of government subsidized plans aimed at seniors — and a higher relative acuity for Medicaid patients led to third-quarter results that fell short of projections.
Among the insurers to feel the pinch during the last quarter was UnitedHealth Group Inc., which by Wednesday had seen its stock value decline 6.7% since Oct. 14, the day prior to the release of its third-quarter earnings.
"Our people will have done all this and more in a challenging period navigating the first year of the [Centers for Medicare & Medicaid Services] Medicare rate cuts and its impact on member mix, the effects of the state-driven Medicaid member redeterminations, certain novel care patents and the Change Healthcare cyberattack," CEO Andrew Witty said during an earnings call.
Despite the revenue growth, the managed care giant lowered its adjusted earnings per share outlook to between $27.50 and $27.75 for the full year from the $27.50 to $28.00 affirmed in the prior quarter. The weaker earnings outlook was partially the result of UnitedHealth absorbing an estimated 75 cents per share in business disruption impacts from the Change Healthcare hack, according to CFO John Rex.
Despite UnitedHealth's medical loss ratio miss, Piper Sandler analyst Jessica Tassan maintained the company's "overweight" ranking, writing in a research note the headwinds are expected to resolve in 2025 due to the company's diversified business.
"[UnitedHealth] is confronting systemic pressures in MA/Medicaid, but we are seeing impressive outperformance in employer and individual [business lines]," Tassan wrote.
Other managed care insurers have also experienced a drop since Oct. 14, with Centene Corp.'s stock falling 17.9% to $59.82 per share from $72.90 per share, The Cigna Group falling 9.6% to $317.57 per share from $351.45 per share, and Elevance Health Inc. falling 18.4% to $415.54 per share from $509.02 per share.
The declines were more severe than experienced by the S&P 500 and S&P Insurance index, which declined a more modest 1.07% and 0.40%, respectively, during the same period.
Molina Healthcare Inc. experienced the sharpest decline in stock value among publicly traded managed care insurers during the period, falling 19.1% from Oct. 14 to Oct. 23, with the value dropping to $277 per share from $340.12 per share.
During the third quarter, Molina's medical loss ratio hit 90.5%, above the company's long-term range and partially the result of premium rate reductions in California, CEO Joseph Zubretsky said in an Oct. 24 earnings call.
"The quarter reflects higher-than-expected medical costs, elevated by the impact of redetermination related to acuity shifts and higher utilization among our continuing population, particularly for [long-term services and supports], pharmacy and behavioral health services," Zubretsky said.
Nevertheless, Molina affirmed its 2024 EPS guidance set in prior quarters, with Zubretsky and other leadership noting improved medical losses in the company's Marketplace plans.
J.P. Morgan analyst Lisa Gill maintained Molina's "overweight" ranking, writing in a research note that although the medical losses were likely a focus of investor's attention, they were also likely a "better than feared" result.
"Importantly, Molina reaffirmed full-year guidance and noted that it anticipated continued Marketplace strength, favorable operating leverage, and higher net investment income, offsetting higher-than-expected trend in both Medicaid and Medicare," Gill wrote.
With only Humana Inc. and Cigna yet to release their third-quarter earnings figures, it remains to be seen if the medical loss trends will prevail throughout the US managed care space.