In recent months, we have published numerous analyses and reports on the turmoil in the health insurance sector. Events have unfolded at a rapid pace, often in a negative direction for the companies concerned. The murder of Brian Thompson, CEO of the UnitedHealthcare division of market leader UnitedHealth, last December sparked debate about the relevance of the US healthcare system, which is dominated by private companies. At the beginning of the year, the US Department of Health and Human Services launched an investigation into the billing practices of the Medicare program, which covers people over the age of 65. Several players have also published poor figures, notably Cigna and Humana. These companies have been hit by rising medical costs in recent months. More recently, UnitedHealth lowered its forecasts and is the subject of a major fraud investigation.
The defensive profile of these companies has allowed them to stay afloat for a while, especially given the uncertainties and trade policy offensive of Donald Trump.
This has resulted in fairly mixed but overall negative performances. Elevance Health, for example, has fallen half as much as Humana. UnitedHealth has lost 35% since the beginning of this year. But since the beginning of 2024, only Cigna has posted a positive performance.
Today, Centene is withdrawing its FY earnings forecast. On the one hand, expected revenues from its individual health insurance contracts (marketplace) will decline sharply. Recent data shows that a sicker-than-expected population and slower market growth in most states will deprive Centene of $1.8bn in risk adjustment payments. These payments are normally used to offset the additional costs associated with the most vulnerable policyholders. However, the sicker the population, the higher the healthcare costs—doctor visits, hospitalizations, medications—while premiums are set in advance, which automatically reduces margins. The impact is significant: EPS is expected to be $2.75 lower this year, compared with the initial target of over $7.25. The effect is all the more significant given that Centene is the leading operator in the individual market with 4.4 million policyholders in 29 states under the Ambetter Health brand.
In addition, medical costs are skyrocketing in several states, particularly New York and Florida, in sensitive areas such as mental health, home care, and drugs. Centene anticipates a further increase in healthcare spending in the second quarter.
The insurer's stock is now where it was at the start of the pandemic—if not lower, depending on whether you look at 2020 or 2021. Since the end of a special pandemic program, insurers offering Medicaid plans—designed for low-income individuals—have seen their costs rise. States have revised their eligibility criteria, leading to the departure of healthier members. The base is more expensive to cover.
The stock is down 30% in pre-market trading on the New York Stock Exchange.
