Elevance Health (ELV) saw its stock tumble by 11% on Thursday following the release of weaker-than-expected third-quarter earnings, the Street reports.
The health insurance company reported adjusted earnings of $8.37 per share, missing analysts’ expectations of $9.66. However, revenue rose 5.3% to $45.1 billion, surpassing the forecasted $43.5 billion.
Elevance CEO Gail Boudreaux attributed the earnings shortfall to “elevated medical costs in our Medicaid business.” Despite the disappointing performance, Boudreaux expressed confidence in the company’s long-term growth potential, citing the diverse range of businesses under its umbrella.
The company’s stock drop came as health insurers face increasing pressures due to rising medical claims and reduced payouts from government programs. Both Molina Healthcare (MOH) and Centene (CNC) also saw significant declines, with their stocks falling by 12.5% and 9%, respectively. These companies, like Elevance, generate substantial revenue from Medicaid and Medicare insurance.
Health insurers are dealing with two primary challenges: a surge in medical claims and cuts to Medicare and Medicaid payments. Recent policy changes from the Biden administration include a projected 0.2% decrease in Medicare Advantage payments for 2025, which could lead to lower profit margins for insurers that rely on these fixed monthly payments from the government.
In addition, health care costs are being driven up by a shortage of workers, higher prices from providers, and increasing demand for behavioral health services and expensive weight-loss drugs, according to a survey by Mercer. US employers anticipate a 5.8% rise in health insurance costs by 2025.
Insurers are also facing challenges due to a decline in star ratings from the Centers for Medicare & Medicaid Services (CMS), which impact quality-based bonuses. Humana (HUM) experienced the most significant decline, with the rating of one of its largest plans falling from 4.5 stars to 3.5 stars, leading to a 66% drop in members with plans rated 4 stars or higher. Elevance Health and UnitedHealth also saw membership declines of 21% and 16%, respectively, in plans with high ratings, though their financial impact is expected to be less severe than Humana’s.
