Elevance cuts forecast as US health insurers battle higher costs
Its shares slid 11% after the company - the first major health insurer to report second-quarter earnings - flagged higher-than-anticipated costs in its individual plans that conform to the Affordable Care Act, known as Obamacare, and its Medicaid plans for low-income people.
In the last three months, peers UnitedHealth Group (UNH.N), opens new tab, Centene (CNC.N), opens new tab and Molina Healthcare (MOH.N), opens new tab have warned of elevated costs across government-backed insurance plans.
Elevance said it was monitoring the likely changes from the Trump administration's plans to implement work requirements for Medicaid beneficiaries.
One investor said the mismatch of healthcare and regulatory costs and government funding pressure and the prices the insurers charge for the services may continue.
"Across all government-sponsored plans, the assumptions that insurers rely on to price their plans are all highly unpredictable, and, if anything, will get worse over the next year," said Daniel Barasa, a portfolio manager at Gabelli Funds, which owns shares of Elevance.
Barasa pointed to issues in Medicare for people aged 65 and older or with disabilities, Medicaid and Obamacare plans.
Shares of Elevance fell 11.3% to $305.60 in afternoon trading while UnitedHealth, Centene, Molina, CVS Health (CVS.N), opens new tab
, and Cigna (CI.N), opens new tab were down between 1% and 2%.
Elevance Chief Financial Officer Mark Kaye said Medicaid work requirements in the Trump Administration's One Big Beautiful Act could further shift its member mix toward a sicker patient profile. The company also said it plans to work with states to ensure Medicaid patients have continued access to health plans.
"Although external conditions remain dynamic, we are prioritizing factors we can directly influence and which are within our control, including taking decisive action to stabilize trends and align pricing for long-term sustainability," Kaye said.
The pace of the 2026 expiration of additional premium tax credits implemented during the COVID-19 pandemic for people purchasing Obamacare plans adds additional uncertainty to enrollment figures, the company said.
Julie Utterback, an analyst at Morningstar, said she thought Elevance planned to price its 2026 plans higher to improve its profit margins rather grab customers with lower prices. She, however, said, "the challenges being seen right now on the utilization front in that business may add pressure for 2026 rates, as well."
Elevance said it sees annual adjusted profit of about $30 per share, compared with $34.15 to $34.85 per share it previously expected.
Wall Street analysts said the forecast cut was largely in the range that investors were expecting going into the quarter.
Elevance forecast full-year medical loss ratio, a closely watched metric which tracks medical costs, to be about 90%, reflecting the ongoing industry-wide trend of higher costs on Medicaid and Obamacare plans.
For the quarter, Elevance reported a medical loss ratio, the percentage of premiums spent on medical care, of 88.9% compared with analysts' estimates of 88.70%.
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