Centene posts surprise loss as medical costs surge, shares slump
Shares of the company tumbled 14.5% in premarket trading, dragging down peers Elevance (ELV.N), opens new tab and Molina Healthcare (MOH.N), opens new tab, which have also warned of elevated costs in government-backed insurance plans.
The insurance sector has been under strain for the past two years due to rising medical costs.
On one hand, insurers are grappling with increased utilization of behavioral health services, home care, and high-cost drugs, while on the other, the expiration of pandemic-era subsidies and Medicaid protections has shifted enrollment toward sicker members, squeezing their margins.
Centene, which largely focuses on government-sponsored plans, posted a medical cost ratio (MCR) of 93% for the quarter, well above Wall Street's expectation of 89.3% and a clear sign of pressure across all business lines.
"The medical cost ratio for the quarter was surprisingly high and appeared related to all major lines of business, although its individual exchange business was likely the biggest culprit," said Morningstar analyst Julie Utterback.
The quarterly loss was largely attributed to a downward revision in expected 2025 risk adjustment revenue, part of the Affordable Care Act's mechanism to balance costs across insurers.
The adjustment, combined with rising Medicaid expenditure drove Centene to a second-quarter adjusted loss of $0.16 per share, versus an expected profit of $0.86, according to data compiled by LSEG.
"We are disappointed by our second-quarter results, but we have a clear understanding of trends that have impacted performance, and are working with urgency and focus to restore our earnings trajectory," CEO Sarah London said.
Centene said it would provide 2025 earnings expectations on the conference call.
The company is in the process of requesting premium increases for Obamacare plans for 2026 to reflect a higher proportion of sicker patients who need more medical care, than it previously expected.
Centene expects to be able to take corrective pricing actions for 2026 in states that represent a substantial majority of its membership in those plans.
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