Elevance Health slashes profit forecast on persistently high medical costs

By Bhanvi Satija and Sneha S K

(Reuters) – Elevance Health cut its annual profit expectation on Thursday due to increased medical costs in its government-backed plans, becoming the latest U.S. insurer to take a hit from high demand for healthcare services.

The company’s shares plunged more than 17% and weighed on rivals, as Centene slid 10%, while CVS Health and Humana fell 3% each.

Health insurers, including Elevance, have warned of elevated costs tied to Medicaid plans this year as claims rose after the end of a pandemic-era policy. During the pandemic, insurers were required to keep members enrolled, but that policy ended last year and states began determining if people remained eligible.

“The issues impacting the Medicaid business are time-bound,” CEO Gail Boudreaux said on a post-earnings conference call. The company was working with state governments to ensure payments reflect the underlying healthcare demand from Medicaid enrollees, she said.

Government-backed Medicaid insurance covers medical care costs for people with limited income. Medicaid members make up about 20% of Elevance’s total medical membership.

Concerns of high medical costs and lower reimbursements for government-backed plans have wiped out about $40 billion from the insurance sector’s market capitalization this week, after rival UnitedHealth forecast 2025 profit below Wall Street estimates on Tuesday.

UnitedHealth said it expects challenges across its government-supported health insurance businesses next year.

Elevance expects its adjusted profit to grow at least in mid-single digits for 2025 and margins for Medicaid business to remain under pressure.

Morningstar analyst Julie Utterback said Elevance’s forecast cut suggests that issues with Medicaid could seep into the next quarter and potentially 2025.

Medicaid costs were “most notable” in Elevance’s behavioral health business, said CFO Mark Kaye. The company expects those costs to come down in 2025.

Elevance cut its 2024 adjusted per-share profit forecast by $4.2 to $33, versus analysts’ estimate of $37.26, data compiled by LSEG showed.

It also missed estimates for third-quarter adjusted profit by $1.29 per share.

(Reporting by Bhanvi Satija and Sneha S K in Bengaluru; Additional reporting by Amina Niasse in New York; Editing by Maju Samuel and Shilpi Majumdar)