Three events that shook health insurers this week
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Managed care stocks witnessed a dramatic selloff this week as fresh concerns over rising medical costs renewed fears over ongoing industry headwinds amid a tight regulatory backdrop.
While the benchmark S&P 500 (SP500) remained flat this week, the S&P 1500 Managed Health Care Sub-Industry Index lost ~6%. Notable decliners were CVS Health (NYSE:CVS), Elevance Health (NYSE:ELV), and Cigna (CI).
UnitedHealth (NYSE:UNH), usually the industry bellwether during the earnings season, was the first to spark the selloff after the Minnesota-based managed-care giant’s Q3 2024 financials indicated a rise in medical costs.
In a subsequent earnings call, UNH CEO Andrew Witty set the company’s 2025 earnings guidance below consensus, attributing his decision to various factors, including payment cuts to the Medicare program.
While UnitedHealth’s (NYSE:UNH) earnings exceeded Wall Street forecasts, its medical care ratio, a key performance metric in the managed care industry, failed to meet the lofty estimates set by the Street.
As the week went on, Elevance Health (NYSE:ELV) dropped another bombshell after the company, focused more on Medicaid, cut its full-year adjusted earnings outlook below consensus amid higher-than-expected medical costs. Ahead of their earnings next week, rivals Molina Healthcare (MOH) and Centene (CNC) joined the selloff in reaction.
Just as earnings-driven concerns died down, CVS Health (NYSE:CVS), the owner of the Aetna health insurer, confirmed fears of an industrywide slowdown.
Announcing a new CEO on Friday, the pharmacy chain operator pulled its full-year outlook and disclosed preliminary Q3 earnings that fell short of Street forecasts amid rising medical cost trends.
However, some managed care operators have found new opportunities in the selloff. After the market close on Friday, Bloomberg News reported that Cigna (CI) had resumed merger talks with Humana (HUM), a stock that has lost ~42% this year amid Medicare cost concerns and cuts to its Star Ratings.