Insurance companies are having a rough go of it recently.
Numerous companies this month have announced that they are withdrawing or reducing their earnings guidance for the year. For instance:
- On Tuesday, Oscar Health announced that it is anticipating a loss from operations of $200 million to $300 million for the year, after previously expecting earnings of $225 million to $275 million.
- Last week, Elevance Health announced that it reduced its outlook for adjusted earnings per share to about $30 for the year, compared to $34.15.
- On Thursday, Molina Healthcare announced that it now expects its full year 2025 adjusted earnings to be $19 per diluted share, compared to $21.50 to $22.50 predicted in early July. This is the second time they’ve reduced it this month.
- Earlier this month, Centene announced that it is withdrawing its 2025 GAAP and adjusted diluted earnings per share guidance.
So why are so many insurance companies’ fortunes flailing?
A lot of it has to do with higher-than-anticipated utilization, particularly in the individual market, experts say. Patients are using expensive weight loss drugs, accessing behavioral health expertise and other services more than they have in the past — these are a few causes for higher claims faced by insurers.
And there may be even more uncertainty ahead for insurers and their members with Medicaid cuts and the upcoming expiration of the ACA enhanced premium tax credits, which are expected to increase costs and cause many to lose coverage.
The challenges
The individual market seems to be one of the biggest pain points for many insurers right now, with higher-than-expected utilization driving up costs, according to Ari Gottlieb, principal of consulting group A2 Strategy Corp.
“One of the things that’s happening everywhere, where the [individual market] is just bad, is the business was underpriced,” he said in an interview. “And we’re seeing utilization pick up. People who have individual plans are just using them more: more weight loss drugs, high-cost specialty, behavioral health, you name it. By and large, insurers didn’t plan for that.”
He added that more people were put on an individual plan during the Medicaid redetermination process, in which people were no longer considered eligible for Medicaid. This also led to higher levels of acuity and utilization.
Elevance CEO and President Gail K. Boudreaux pointed to these particular challenges in the company’s earnings call, stating that its adjusted earnings reflected “elevated medical cost trends across ACA and slower-than-expected Medicaid rate alignment.”
In other words, during the pandemic, Medicaid paused eligibility redeterminations, so many people stayed enrolled even if they weren’t using any care. Now that redeterminations have resumed, many of those low-utilization members have been removed, but states are still using utilization data from a few years ago (which includes those members) to set plan reimbursement rates. As a result, Medicaid plans are being paid less relative to the higher needs of their current enrollees, according to Gottlieb.
Oscar Health, which provides individual and family plans, is facing higher utilization and acuity as well. It stated in its announcement that it now expects a medical loss ratio of 86% to 87% and higher ACA Marketplace risk scores.
Like Oscar, Molina has a major presence in the individual market, and said that its updated guidance is disproportionately attributed to Marketplace.
“Our second quarter results and revised full year outlook reflect a challenging medical cost trend environment,” said Joseph Zubretsky, president and CEO, in a statement. “The current earnings pressure we are experiencing results from what we believe to be a temporary dislocation between premium rates and medical cost trend which has recently accelerated.”
Another challenge insurers are facing is a crackdown on fraud, according to Hal Andrews, Trilliant Health president and CEO. He noted that the U.S. Senate recently targeted a loophole that allowed people to be dual enrolled in Medicare Advantage and get coverage from the Veterans Health Administration. The loophole permits healthcare insurers to charge Medicare to cover veterans even though they’re getting their treatment through the VHA. Lawmakers introduced a bill that would allow the VA to charge private health insurers in the Medicare Advantage system for medical care that it provides for their insurers’ members.
Further, CMS recently estimated that 2.8 million Americans are enrolled in two or more Medicaid/ACA exchange plans, forcing the government to pay multiple times for people to receive health coverage. CMS added that it is partnering with states to reduce duplicate enrollment, including providing states with a list of individuals enrolled in Medicaid in two or more states and asking them to recheck their eligibility.
“So even though they’re primarily getting their healthcare covered by one plan, the government is subsidizing premiums for multiple plans,” Andrews said in an email. “It’s kind of like Planet Fitness having members paying their monthly fee but never showing up.
“However, for insurers, that dynamic is changing and, as a result, they’re about to lose millions of these members, which is why many are withdrawing and adjusting their earnings guidance,” he added, referring to the recent policy changes from CMS and Congress.
The earnings cuts/withdrawals follow a similar announcement from UnitedHealth Group in May. The healthcare giant suspended its 2025 outlook and replaced Andrew Witty as CEO with Stephen J. Hemsley, who served as the company’s CEO from 2006 to 2017.
It’s worth noting, however, that while several insurers have blamed the individual market for their recent challenges, UnitedHealth Group’s story is a little different, according to Gottlieb. The company suspended its earnings due to increased utilization in Medicare Advantage, while several of these other insurers have stated that their MA businesses are performing as expected, Gottlieb noted.
What’s ahead?
The revised earnings guidances are actually “symptomatic of a bigger disease:” the growing unaffordability of healthcare in the U.S., according to one healthcare expert.
“My translation of it is, ‘We’re in trouble when it comes to the pricing. We’re possibly in trouble when it comes to the revenue, and we’re not quite sure what we can do. We want to do what we will do, so let’s withdraw our guidance while we figure it out,’” said Dr. Robert Pearl, former CEO of the Permanente Medical Group, who is currently a professor at Stanford University School of Medicine and Stanford Graduate School of Business. “I don’t see that they have a lot of solutions, because I don’t think they can raise the rates as much as they would like to to cover the cost. I don’t think they can reduce the cost as much as they would like to to stay within their rates.”
Pearl added that there are numerous upcoming headwinds for insurers, including the Medicaid cuts and the expiration of the ACA enhanced premium tax credits at the end of the year, which will increase premiums significantly. Elevance’s CFO, Mark Bradley Kaye, noted in the earnings call that the reconciliation bill and the expiration of the enhanced subsidies could “present near-term enrollment pressures and further shift in the risk pool.”
Gottlieb agreed that the challenges are only going to continue, stating that it’s going to be a “brutal” quarter and year for the individual market, and that next year could be even worse.
To another industry expert, the guidance cuts are a “wake up call” for the industry, and show a need to adapt more quickly.
“I think some of the things that are going to help them turn things around include making data faster and more useful, so getting up to date information on costs, claims, patient trends, so they’re not waiting weeks to be able to spot problems or make adjustments, connecting systems together that don’t normally talk to each other,” said Esteban Lopez, partner at consulting firm West Monroe.
Photo: Mbve7642, Getty Images
