Insurance companies are cutting earnings expectations following Medicaid redeterminations.
UnitedHealth Group projected its 2025 earnings per share at up to $30, about $1 below Wall Street expectations, in its October 15 earnings call. Elevance also shrunk its projected adjusted diluted earnings per share in 2024 from $37.20 in July to about $33 in its October 17 earnings call.
What’s going on?
Payers are attributing the drops, in part, to the resumption of Medicaid eligibility determinations.
Prompted by the national public health emergency, states paused Medicaid eligibility determinations for about three years during the pandemic.
Eligibility checks then restarted in April 2023 in a process called the Medicaid “unwinding,” aka redeterminations. Since that point, about 25 million people were disenrolled, either because they became ineligible or—about 69% of the time—for some procedural reason, like failing to update their mailing address, according to a September KFF analysis.
In total, between April 2023 and June 2024, enrollment dropped from more than 94 million to about 80 million, according to KFF’s Medicaid enrollment and unwinding tracker.
Shrinking pains
Experts say that people remaining on Medicaid are typically sicker and using services more frequently.
“If you’re really actively using your Medicaid coverage, you’re probably more likely to make sure that you do the paperwork you need to do in order to stay enrolled,” Matthew Fiedler, Joseph A. Pechman senior fellow in economic studies and a senior fellow with the Center on Health Policy at the nonprofit research org Brookings Institution, told Healthcare Brew. Meanwhile, state payment rates are largely based on data from before the redeterminations, Elevance and UnitedHealth execs said in earnings calls. That means insurers are being paid less relative to the amount of care they’re subsidizing.
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“The short-term headwinds are a byproduct of the large scale and unprecedented mix shifts associated with the end of the public health emergency,” Gail Boudreaux, president and CEO of Elevance Health, said during the company’s call.
Even execs from Centene, which increased its 2024 projections, brought up the mismatch between state rates and acuity in its October 25 earnings call.
“Millions of Americans have been transitioned out of managed Medicaid across the country, materially shifting the Medicaid risk pool in a way that requires action by our state partners to right-size program rates,” Centene CEO Sarah London said during the call.
Uncertain future
The good news is that, eventually, state data will catch up to reality, experts say. State payment rates are regularly reset based on newer utilization data, so over time, states should raise their payment rates accordingly.
“A lot of this is going to work itself out organically,” Fiedler said.
But there are other stressors that may be here to stay.
John Rex, UnitedHealth Group president and CFO, said that other obstacles also contributed to lower profits, like changes brought by the Inflation Reduction Act and rising costs of specialty drugs, Healthcare Brew previously reported.
And according to Michael Abrams, managing partner at life sciences strategy firm Numerof & Associates, specialty medications are a growing trend that could make it especially expensive to be an insurer in the near future
“You have more services and medicines being used, and the price of each service and the meds have gone up, and so it’s multiplicative, and that’s where the biggest factor is,” Abrams told Healthcare Brew.