Financial Results

Centene Corp.’s results for the fourth quarter of 2023 were largely positive, earning mild praise from Wall Street analysts. While Centene was the latest health insurer to face higher-than-expected Medicare Advantage utilization, executives claimed that the firm’s MA performance was far less worrisome than that of its peers — an argument that analysts seemed to accept.

Centene’s Medicare medical loss ratio (MLR) for the quarter was an eye-popping 95.3%, up from 87.5% in the fourth quarter of 2022, an increase of 780 basis points (bps). According to Jefferies analyst David Windley, that figure was 510 bps above Wall Street consensus projection for Centene’s Medicare book of business. However, during a Feb. 6 earnings call, Centene CEO Sarah London and Chief Financial Officer Drew Asher both insisted that the high MLR figure was not a reason for concern, was not caused by the same factors that drove high MLRs for MA peer firms like Humana Inc., and was accounted for in 2024 guidance.

During the recent fourth-quarter earnings calls held by their diversified parent companies, the Big Three PBMs — The Cigna Group’s Express Scripts, UnitedHealth Group’s Optum Rx and CVS Health Corp.’s Caremark — factored prominently into discussions of the firms’ financial results and future growth strategies.

When CVS Health reported its quarterly and full-year results on Feb. 7, CEO Karen Lynch wasted little time before describing what she called CVS’s “innovative models and offerings that create more transparency and choice for consumers and clients.”

Industry analysts reacted with a shrug on Jan. 31 when CMS released the much-anticipated 2025 Advance Notice of Medicare Advantage and Part D payment changes, which said that health plans can expect to receive a 3.7% average increase in risk-adjusted revenue next year.

The 3.7% figure factors in a 2.45% revenue decline related to fee-for-service normalization and a major risk adjustment model revision that CMS is phasing in over three years, as well as an effective growth rate of 2.44% and a Star Ratings bonus impact of -0.15%. CMS estimated the revenue change from the combination of those proposed policies is -0.16%. After also factoring in an average risk score increase of 3.86%, CMS arrived at its net expected revenue change of 3.7%.

After reportedly vying with Elevance Health, Inc. for the purchase of The Cigna Group’s Medicare Advantage business, Health Care Service Corp. (HCSC) will buy Cigna’s MA, Medicare Supplemental, Medicare Part D and CareAllies assets for a total transaction value of $3.7 billion. HCSC has been aggressively growing its MA business through service area expansions; the addition of Cigna’s MA lives would boost its current share of the segment from 0.62% to 2.40%, according to AIS’s Directory of Health Plans.

In a press release unveiling the deal, the Chicago-based insurer said the acquisition will accelerate its growth in “an important market segment” and “bring many opportunities to HCSC and its members — including a wider range of product offerings, robust clinical programs and a larger geographic reach.” HCSC is customer-owned, meaning policyholders and not stockholders are the owners, and it is an independent licensee of the Blue Cross and Blue Shield Association. Its Blues plans currently enroll 204,638 members across five states: Illinois, Montana, New Mexico, Oklahoma and Texas.

As the first round of fourth-quarter and full-year 2023 financial results were reported by publicly traded insurers in January, modest enrollment growth during the recently concluded Annual Election Period (AEP) and continued utilization pressures were prominent Medicare Advantage themes during earnings calls. Although analysts were particularly concerned with results posted by Humana Inc., which notably moved up its earnings release date, some maintained that the MA-focused insurer remains poised for long-term growth in the sector.

Humana Inc. on Jan. 25 introduced 2024 adjusted earnings per share (EPS) guidance of “approximately $16” — compared with the Wall Street consensus of $29.14. But that was after a regulatory filing indicated that inpatient utilization was higher than expected in the fourth quarter of 2023, primarily during November and December, “as well as a further increase in non-inpatient trends, predominantly in the categories of physician, outpatient surgeries, and supplemental benefits, which emerged with the November and December paid claims data.” Humana’s stock plummeted after the disclosure, and the impact reverberated throughout the managed care sector, denting the share values of competitors including CVS Health Corp. and Elevance Health, Inc.

While publicly traded insurers’ fourth-quarter and full-year 2023 earnings reported thus far have highlighted concerning trends in Medicare Advantage, a new report from Moody’s Investors Services suggests that the MA market even prior to the current climate is showing “signs of weakening.” Nevertheless, with per-member earnings far greater than in other sectors, MA can still be profitable when properly managed and will stay competitive, suggests an analyst with the credit ratings firm.

Among the 10 insurers rated by Moody’s — which account for approximately two-thirds of all MA members — aggregate earnings stemming from MA decreased by 2% from $10.8 billion in 2019 to $10.6 billion in 2022, the most recent year available. During that same period, the aggregate MA earnings margin fell from 4.9% to 3.4% and earnings per member dropped by 28% ($732 to $526). While those earnings remain higher compared to other segments, earnings per member in the Medicaid and commercial segments increased, leading to an overall decline of 2.7% to $216 per member, according to the Jan. 23 Moody’s report.

Although a recent Humana Inc. regulatory filing had already prepared the market for a lackluster fourth-quarter earnings report, Wall Street analysts appeared to be shellshocked on Jan. 25, when the Medicare Advantage-focused insurer detailed just how much of a financial hit it expects to take from an unanticipated care utilization surge.

“Worst case scenario plays out,” Justin Lake of Wolfe Research wrote in a note to investors published shortly after Humana released its financial results — which included a newly revised 2024 adjusted earnings per share (EPS) outlook of “approximately $16.”

Elevance Health, Inc. reported stronger results for its 2023 fourth quarter earnings than its other publicly traded managed care peers so far, driven by relatively low utilization across its diverse mix of business lines. The results received positive reviews from Wall Street analysts, who contrasted the strong results with other carriers’ struggles.

Elevance, the for-profit Blue Cross and Blue Shield affiliate formerly known as Anthem, experienced lower care utilization than other managed care heavyweights like UnitedHealth Group and Humana Inc. — something that analysts were quick to note in their coverage of Elevance’s results. Elevance has substantive business in commercial insurance, Medicare and Medicaid.

If the market reactions to a Humana Inc. regulatory filing and to UnitedHealth Group’s latest earnings report are any indication, concerns about elevated care utilization that cropped up in the second half of 2023 have followed health insurers into the new year.

While Humana had already expected that heightened medical care use among its senior enrollees would continue through the rest of 2023, “actual fourth quarter results reflect an additional increase in Medicare Advantage medical cost trends,” the company said in a Jan. 18 filing with the Securities and Exchange Commission.

Although 2024 seems far removed from the height of the COVID-19 pandemic, the ripple effects associated with that disruptive global crisis are still influencing how this year will turn out for the U.S. health insurance sector, two top credit ratings firms predict.

“We’re calling it the pandemic hangover,” says Brad Ellis, senior director in Fitch Ratings' North American insurance rating group.

“I think this year might be the last year we’re seeing what we call pandemic-related effects on the industry,” adds James Sung, director of insurance ratings at S&P Global.