Health insurer Elevance cautious on Medicaid business this year

By Sriparna Roy and Amina Niasse

(Reuters) -Elevance Health signaled medical costs would remain high this year as the insurer expects more claims in the second half from members enrolled in its government-backed Medicaid plans, sending its shares down nearly 7% on Wednesday.

Shares of rival insurers offering Medicaid plans were also off, with Centene down as much as 4% and Molina Healthcare falling as much as 4.7%.

Elevance and other insurers have pointed to higher-than-forecast costs from Medicaid plans that help cover medical expenses for people with low income.

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

While re-enrollment for its Medicaid plans has started to increase, the company is still seeing sicker patients than forecast sign up for its plans, potentially offsetting growth in operating revenue.

Elevance anticipates increased care utilization by Medicaid members during the second half of 2024, leading the insurer to revise its full-year medical loss ratio forecast - a metric that tracks medical costs - to be 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%, lower than the 86.4% reported last year and the LSEG estimate of 86.42%.

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

UnitedHealth and other insurers that have large Medicare businesses for people aged 65 and older have been noting higher-than-expected medical services use since last year.

Elevance's second-quarter adjusted profit of $10.12 per share beat estimates of $10.01 per share, helped by strength in its health services unit Carelon, higher premiums and membership growth in its Obamacare and commercial health plans.

Carelon, under which Elevance operates its pharmacy benefit management unit, reported a nearly 10% rise in revenue to $13.3 billion, helped by demand for its medical benefit and behavioral health management services.

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