Health Insurer Elevance Cautious on Medicaid Business This Year

Written by Sriparna Roy and Amina Niasse

(Reuters) – Elevation Health Inc signaled that medical costs will remain high this year as the insurer expects more claims in the second half of the year from members enrolled in government-backed Medicaid plans, sending its shares down about 7% on Wednesday.

Shares of rival insurers that offer Medicaid plans also fell, with Centene down about 4% and Molina Healthcare down about 4.7%.

Elevance and other insurers have cited higher-than-expected costs from Medicaid plans that help cover medical expenses for low-income people.

The company said at an industry conference last month that the decline in the number of people eligible for Medicaid plans this year due to the end of the pandemic-era policy has led to a shift in membership to patients who need more medical care.

Although re-enrollment in its Medicaid plans has begun to pick up, the company is still seeing sicker patients enroll in its plans than expected, which could offset growth in operating revenue.

Elevance expects Medicaid member use to increase during the second half of 2024, prompting the insurer to revise its full-year medical loss ratio forecast — a measure that tracks medical costs — to near the upper end of its initial range of 86.5% to 87.5%.

In the second quarter, Elevance’s medical loss ratio — the percentage of premiums spent on medical care — was 86.3%, down from 86.4% a year ago and LSEG’s estimate of 86.42%.

Bernstein analyst Lance Wilkes said the company’s healthcare costs point to a high but stable backdrop for demand for healthcare services, consistent with rival UnitedHealth’s earnings on Tuesday.

UnitedHealth and other insurers with significant Medicare business for people 65 and older have seen higher-than-expected use of medical services since last year.

Elevance’s second-quarter adjusted earnings of $10.12 per share beat estimates of $10.01 per share, thanks to strength in its Carillion health services unit, higher premiums and membership growth in commercial health plans and Obamacare plans.

Carelon, which operates the pharmacy benefits management unit Elevance, reported revenue rose about 10% to $13.3 billion, helped by demand for its medical benefits and behavioral health management services.

(Reporting by Bhuiyan Singh and Sriparna Roy in Bengaluru and Amina Niasi in New York; Editing by Devika Syamnath)