Insurance Industry Under Pressure: Share Price Drop at Elevance Health

The shares of Elevance Health plummeted dramatically in the U.S. after a reduction in the annual forecast—the steepest drop in four years. This setback could potentially indicate deeper structural problems in the insurance industry. Elevance lowered its adjusted earnings forecast for the year from at least $37.20 per share to about $33, leading to a stock price plunge of up to 20% at the opening of the New York Stock Exchange. Other insurance companies were not spared either: Centene fell by as much as 10%, while Molina Healthcare dropped 11%. These companies primarily provide Medicaid services for low-income U.S. citizens. The deteriorating outlook for Medicaid insurers had already alarmed investors after UnitedHealth Group released a disappointing forecast on Tuesday. Analysts view the development as a threat to the half-year results and pointed to a "threatening" situation for Medicaid providers. Elevance sees the Medicaid challenges as temporary, yet the cost pressure remains high. CEO Gail Boudreaux explained that while recent increases in Medicaid rates are the highest in a decade, they are insufficient to cover the rapidly rising medical costs. The company stated that "unprecedented challenges" in the Medicaid business were responsible for the disappointing numbers. Following the end of the COVID-19 pandemic, states have excluded millions of people from the program, with the number of program participants dropping by around 15% since March 2023. Despite the challenges, Elevance aims for moderate earnings per share growth in the medium term, with an increase in the mid-single-digit percentage range expected by 2025. This is below the long-term target of at least 12% growth and reflects the ongoing difficulties with Medicaid payments. Besides Medicaid, insurers also face profit-diminishing regulations in private Medicare Advantage plans. Elevance forecasts that the number of members in highly rated programs could decline, further impacting revenues. Also noteworthy is that Elevance achieved revenue of $44.7 billion, exceeding analysts' expectations, but the adjusted quarterly earnings were $8.37 per share, falling short of forecasts. The worse-than-expected ratio of medical costs to revenue was also critically noted.