Dive Brief:
Elevance Health lowered its profit guidance for 2024 on Thursday as the insurer manages “unprecedented challenges” in its Medicaid business.
The company expects net income per diluted share to be approximately $26.50, down from at least $34.05 it projected last quarter.
But CEO Gail Boudreaux said the increased costs pressuring its Medicaid segment would alleviate as states updated their payment rates to better match member acuity. “We remain confident in the long-term earnings potential of our diverse businesses as we navigate a dynamic operating environment and unprecedented challenges in the Medicaid business,” she said in a statement.
Dive Insight:
Elevance isn’t the only payer flagging challenges in Medicaid following redeterminations, the process where states rechecked beneficiaries’ eligibility for the safety-net program after a period of continuous enrollment during the COVID-19 pandemic.
Millions of people have been removed from Medicaid since last spring, potentially leaving behind sicker enrollees with higher medical utilization. During an earnings call earlier this week, UnitedHealth also noted a mismatch in payment rates and member acuity.
Elevance’s medical loss ratio — a marker of spending on patient care — was 89.5% in the third quarter, up from 86.8% last year, driven largely by the mismatch in Medicaid rates to patient acuity, or severity of illnesses and medical conditions.
On a Thursday morning call with investors, Boudreaux argued the safety-net insurance program was still a good business for the insurer in the long term, even though states’ current payment rates aren’t high enough to cover the increased medical needs of Medicaid beneficiaries.
“Our Medicaid team is working tirelessly with our state partners, and we appreciate the collaboration,” she said. “While the rate increases we’ve received are the highest in the past decade, they’re still inadequate to cover 2024 cost trend that we now expect to be three to five times historical averages.”
The disparity between member medical costs and rates is expected to narrow next year, as states update their rates, Elevance CFO Mark Kaye said on the earnings call.
The insurer is more confident in its Medicare Advantage business. Elevance expects to grow MA membership in line or slightly better than the broader market in 2025, after the insurer exited underperforming markets and cut benefits last year, Boudreaux said.
The company also runs two plans that received a five star quality rating for next year. Still, Boudreaux noted Elevance’s percentage of members in plans rated four stars and above will decline overall in 2025, due to one large contract narrowly missing a four star rating. The insurer has challenged its initial scoring with the CMS.
Elevance missed analyst expectations on earnings per share and beat on revenue. The insurer reported $1 billion in profit on $45.1 billion in revenue, compared with a $1.3 billion bottom line and revenue of $42.8 billion during the period last year.
