Indianapolis-based Elevance Health Inc. shares plunged by their largest amount in about 18 months as the company’s medical costs failed to decrease in line with rival UnitedHealth Group Inc., which reported sunnier results last week.
Investors are primed for managed care companies to report lower medical expenses than earlier anticipated since UnitedHealth’s results last week buoyed the sector. Elevance’s medical-loss ratio, an important measure of how much premium revenue is paid out for medical care, was 87%, compared to 86.8% in the same quarter a year ago.
The shares fell as much as 8%, the most intraday since January 2021. The company changed its name from Anthem in June as part of a broader plan to rebrand parts of its business.
Investors were disappointed even as the company increased its full-year profit outlook and beat analysts’ projections for second-quarter earnings. Adjusted earnings were $8.04 a share in the quarter, Elevance said Wednesday in a statement, compared to $7.77, the average of analysts’ estimates compiled by Bloomberg.
Full-year adjusted profit will be above $28.70 a share, compared to its previous forecast of greater than $28.40 a share, the company said.
Overall medical costs are still higher than pre-pandemic baseline levels, led by expenses in the company’s commercial insurance business, Chief Financial Officer John Gallina said on a call with analysts. COVID-19 did pressure margins this year in the company’s fully-insured commercial plans where it holds the risk of medical costs, CEO Gail Boudreaux said, but the company adjusts prices in response to cost trends.
“We’ve been in this pandemic now for several years. COVID is not going to zero,” she said. “We’re always pricing to our forward view of costs.”
While COVID was originally anticipated to raise medical costs, the pandemic kept many people needing care out of hospitals because of contagion fears. After the omicron wave of COVID-19, insurers were bracing for a resurgence in non-COVID expenses, “but such a rebound did not fully materialize,” Evercore ISI analyst Michael Newshel wrote in a note to clients.
Costs in line
Rather, Elevance’s medical costs were in line with expectations, RBC Capital Markets’ Ben Hendrix wrote, and “solid membership growth” of 6.1% annually was driven by Medicaid and Medicare enrollment. Total medical enrollment was 47.1 million as of June 30, compared to 46.9 million in the average analyst estimate.
Operating revenue of $38.5 billion in the quarter beat estimates. The gain in its commercial insurance business was driven by membership growth, the company said, “partially offset by the net unfavorable effect of COVID.”
Shareholders’ net income according to generally accepted accounting principles declined 7.8% from a year ago. Elevance recorded net losses on financial instruments in the second quarter, compared to gains a year ago, and the investment results are excluded from adjusted earnings. The company said it had a net unrealized loss of $2 billion in its investment portfolio.
Elevance is withdrawing from a planned contract to provide Medicare Advantage insurance to New York City retirees after the start of the contract was delayed by litigation, Boudreaux said.
Boudreaux also said Elevance hasn’t seen signs of companies trimming payrolls in response to economic headwinds.
“We’re really seeing employers still expanding their workforce and looking for more benefits and to maintain the strength of their workforce,” she said. “We haven’t seen any pullback yet.”