Elevance profit dent by 'unprecedented' Medicaid challenges also hits Molina, Centene

 Rivals Centene, Molina Healthcare and UnitedHealth fall in tandem after Elevance cuts its guidance

Elevance Health Inc.'s stock tumbled 13% Thursday and weighed on rivals after the health insurer's third-quarter profit fell short of estimates amid "unprecedented" challenges in the Medicaid business.

The stock was leading S&P 500 decliners in volume that was about four times the average over the past 65 days.

Rival Centene Corp. (CNC) was down 9.6%, Molina Healthcare Inc. (MOH) was down 13% and UnitedHealth Group Inc. (UNH) was down 1.5%.

Indianapolis-based Elevance (ELV) had net income of $1.02 billion, or $4.36 a share, for the quarter, down from $1.29 billion, or $5.45 a share, in the year-earlier period. Excluding one-time items, the company had per-share earnings of $8.37, below the $9.66 FactSet consensus.

Revenue rose 5.3% to $45.106 billion from $42.849 billion a year ago, ahead of the $43.467 billion FactSet consensus.

"We remain confident in the long-term earnings potential of our diverse businesses as we navigate a dynamic operating environment and unprecedented challenges in the Medicaid business," Chief Executive Gail K. Boudreaux said in prepared remarks.

Medical membership fell by 1.5 million to 45.8 million due to attrition in the Medicaid business stemming from eligibility redeterminations and footprint adjustments in certain states. The redetermination process is one used by states to ensure that Medicaid enrollees are still eligible for coverage.

More than 25 million people have been removed from the Medicaid rolls since early 2023, when states were allowed to resume disenrolling people who were no longer eligible for the program, according to health-policy research nonprofit KFF. A pandemic-era law previously gave states extra federal funding in exchange for keeping people enrolled in Medicaid.

"We expect Medicaid rates will align with the needs of our members in time, and are taking proactive actions to enhance operational efficiencies that will ensure we emerge from this period even stronger," Boudreaux said.

Elevance lowered its full-year guidance and said it now expects earnings per share of about $26.50 and adjusted EPS of about $33. That's down from the guidance of at least $34.05 in GAAP EPS and adjusted EPS of at least $37.20 offered with second-quarter earnings.

The Medicaid "unwinding" process has been a major sticking point for some top health insurers this year. In May, the stocks of the major insurers tumbled after UnitedHealth forecast a "disturbance" in its Medicaid business (UNH).

Elevance said its benefit-expense ratio, also known as a medical-loss ratio - a measure of how much in premiums is spent on medical treatment versus administrative costs, where a lower number is better - rose 270 basis points to 89.5%.

That was driven mostly by the timing mismatch between Medicaid rates and the higher acuity of members. Acuity refers to the severity of a patient's medical condition and the amount of care they will need.

Mizuho said the guidance cut was much worse than expected, although expectations were for a miss after comments from a rival at a conference.

"The medical loss ratio of 89.5% missed our estimate and consensus by +200 [basis points] and +195 [basis points], respectively, though we believe investors expected deterioration headed into the quarter after the company raised Medical Loss Ratio guidance due to elevated Medicaid utilization," analyst Ann Hynes wrote in a note to clients.

Mizuho has an outperform rating on the stock, the equivalent of buy.

https://www.morningstar.com/news/marketwatch/20241017313/elevance-healths-stock-slumps-13-as-profit-dented-by-unprecedented-medicaid-challenges