By Bhanvi Satija and Sneha S K
(Reuters) -Elevance Health slashed its full-year profit forecast on Thursday, hurt by increased medical costs in its government-backed plans, becoming the latest health insurer to feel the pinch of persistently high demand for healthcare services.
Shares of the company slumped 12% in premarket trading and dragged down rivals, with Centene and CVS Health falling 8% and 2%, respectively.
Elevance and some other insurers have indicated that costs associated with Medicaid plans are expected to be high this year, as an end of a pandemic-era policy has left them with more sick patients, driving an uptick in claims.
Concerns of high medical costs and lower reimbursements for government-backed plans have wiped out about $40 billion from the insurance sector’s market capitalisation this week, following weak results from rival UnitedHealth on Tuesday.
CEO Gail Boudreaux said Elevance was navigating “unprecedented challenges in the Medicaid business”. Medicaid members make about 20% of its total medical membership.
Morningstar analyst Julie Utterback said the guidance cut suggests that issues with Medicaid could seep into the next quarter and potentially 2025, pressuring industry players further.
UnitedHealth expects challenges across its government-supported health insurance businesses and forecast 2025 profit below Wall Street estimates. Elevance forecast 2025 adjusted profit growth in at least the mid-single digit range.
During the pandemic, insurers were required to keep Medicaid members enrolled, but that policy ended last year and states began determining if people remained eligible.
Elevance cut its 2024 adjusted profit forecast by $4.2 to $33 per share, versus estimates of $37.26 per share, according to data compiled by LSEG.
Its medical loss ratio — the percentage of premiums spent on medical care — deteriorated to 89.5% in the third quarter, from 86.8% a year earlier. Analysts had expected 87.15%.
Elevance also missed Wall Street estimates for quarterly adjusted profit by $1.29 per share.
(Reporting by Bhanvi Satija and Sneha S K in Bengaluru; Editing by Shilpi Majumdar and Maju Samuel)
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