Earnings check-up: Health insurers beat expectations despite rising costs, sinking star ratings

There were two themes that kept popping up in health insurers’ recent earnings calls: rising medical costs and Medicare Advantage star ratings.

Despite generally surpassing industry expectations in Q4, these challenges have been a recurring theme throughout 2024.

Medical costs mount

Medicaid and Medicare members are getting more care more often, and insurers are paying more as a result.

“Most insurers, they hadn’t priced for that level of utilization,” Michael Cherny, senior research analyst and senior managing director at Leerink Partners, a healthcare investment bank, told Healthcare Brew.

Elevance Health, for instance, reported $3.84 a share in Q4 2024, beating analysts’ expectations of $3.81, according to FactSet, as reported by Market Watch.

However, the company highlighted elevated medical costs among Medicaid members, pushing its benefit-expense ratio—the amount spent versus earned from customers—to 92.4% in Q4, up from 89.2% in Q4 2023.

Elevance has previously attributed these higher expenses to a sicker Medicaid population.

In April 2023, after a years-long pause during the pandemic, the federal government resumed removing people from Medicaid. Experts previously told Healthcare Brew that those who remain on Medicaid seem to be sicker and use services more frequently.

But state payment rates to health insurers are largely based on data from before the redeterminations, when the Medicaid population was healthier—which means insurers aren’t getting reimbursed enough relative to what they’re spending.

Elevance CEO Gail Boudreaux said in a Jan. 23 earnings call that rates should adjust soon.

“While rates today remain insufficient to cover the elevated level of cost trend we are experiencing, we remain confident that rates will ultimately reflect the underlying acuity of our Medicaid membership over time,” she said.

Similarly, Centene reported better-than-expected performance, with Q4 earnings per share of $0.80, surpassing Zack’s Equity Research consensus estimates of $0.49 per share.

But the company’s medical-loss ratio of 89.6% was higher than last year’s 87.7%, indicating costs are a bigger burden than they were before. It was lower than analyst estimates of 89.95%, however, Reuters reported.

Centene CEO Sarah London expressed hope that costs would stabilize further in the coming year. “In 2025, we expect to collaborate with our state partners to achieve better alignment for Medicaid rates and member acuity,” London said.

John Rex, UnitedHealth Group CFO, was also optimistic for 2025, despite 2024’s full-year medical care ratio reaching 85.5% compared to 83.2% in 2023.

“In Medicaid, we see the gap between people's health status and state rates narrowing over the course of the year,” Rex said during the company’s earnings call on Jan. 16.

Seeing stars

Another hot topic was the decline in Medicare Advantage star ratings, a key quality metric that affects bonus payments.

Humana saw its share of members in 4-star or higher plans drop from 94% for 2024 to 25% for 2025 after the insurer got lower-than-expected 2025 star ratings.

In response, Humana is investing several hundred million dollars to enhance its ratings and clinical performance, CFO Celeste Mellet said in a February 11 earnings call.

“We’re focused on stars, of course. We’re investing in clinical excellence, membership strategies in other areas,” she said.

Humana, Elevance, Florida Blue, UnitedHealthcare, and Centene have challenged their ratings in court. As a result, CMS is recalculating 2024’s ratings and is changing how it recalculates star ratings going forward.

Humana reported an adjusted loss of $2.16 per share for the fourth quarter, slightly better than FactSet’s anticipated $2.21 loss, Barron’s reported.

Humana also shared in its February 11 earnings report that it expects Medicare Advantage annual membership to decline in 2025 by 550,000 or 10%.

Meanwhile, other insurers are more optimistic. Gail Boudreaux, Elevance Health president and CEO, said the insurer expected 7% to 9% Medicare Advantage membership growth in 2025.