Elevance cuts outlook as higher costs weigh on industry

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Elevance Health Inc. cut its profit outlook for the year on higher medical costs in Affordable Care Act plans and lower reimbursement from Medicaid, the latest in a series of disappointments from health insurers in recent months.

The insurer’s shares were down more than 10% as of 11:45 a.m. Thursday. The forecast cut comes less than two months after Elevance affirmed its outlook despite rising cost trends. It’s more evidence that insurers are struggling to contain persistent and widespread increases in medical expenses.

On Thursday, Elevance lowered its adjusted earnings outlook for the year to “approximately” $30 per share. The company had previously forecast a range of $34.15 to $34.85 a share for adjusted earnings.

“While the external environment continues to evolve, we are focused on the areas within our control,” including managing costs and improving technology, Elevance CEO Gail Boudreaux said in the earnings release.

Elevance is the first big U.S. health insurance company to report full results in a period of intense scrutiny. Rival UnitedHealth Group Inc. will post its earnings later than usual after scrapping its guidance in May. Since then, Centene Corp. withdrew its outlook and Molina Healthcare Inc. cut its forecast and issued disappointing preliminary results.

“Managed care is probably the single most hated sector in the whole market right now given rising medical costs and intense pressure in various government programs,” according to a note from Vital Knowledge founder Adam Crisafulli. He added that the “miss-and-cut” earnings results likely won’t come as a shock to investors.

Even with insurers’ stocks down now, “there isn’t much reason for people to buy the dip as fundamentals aren’t likely to improve in the near or medium-term,” Crisafulli said.

Elevance’s membership declined slightly from the first quarter, with drops in Medicaid and fewer people purchasing Affordable Care Act plans. Those trends are set to get worse in the years ahead: Congress has cut almost $1 trillion from Medicaid over the next decade and tax credits that swelled ACA enrollment are set to end.

Elevance said it’s still committed to growing adjusted earnings per share by at least 12% over the long term. Its revised forecast for 2025, though, would be the company’s lowest annual profit since 2022, according to data compiled by Bloomberg.

Industry trouble

At a conference in May, Boudreaux said the insurer was seeing higher care usage in Affordable Care Act markets and for behavioral health. Medicaid costs were declining more slowly than the company had planned, she said then. At the time, the company affirmed its outlook for earnings and medical loss ratio, a key measure of the amount of premium revenue that goes to pay for care.

For the second quarter, that ratio came in slightly better than analysts expected, but earnings still fell short. Quarterly adjusted earnings were $8.84 a share, compared to the $8.94 a share average analyst estimate in a Bloomberg survey.

Elevance’s results track with recent trends for the industry, which is under increasing pressure in Washington. For months, health insurers have been badly blindsided by higher-than-expected medical costs and changes in government programs that have squeezed revenue and terminated members from plans.

UnitedHealth cited rising costs in private Medicare Advantage health plans, a market that it leads and has been at the center of its strategy for years. Changes in how the government compensates Medicare insurers for taking on sicker patients have cut payments to its insurance plans and doctors.

Centene, meanwhile, said earlier in July it was caught off guard by rising risks in ACA plans—a costly modeling error. Molina cited rising costs across its businesses in Medicare, Medicaid and the ACA market.