Elevance, CVS, UnitedHealth Struggle With Rising Medical Costs After COVID-19 Medicaid Policy Ends

Benzinga · 10/18 16:09

Several large insurers have reported higher-than-expected medical costs, particularly in their government-sponsored Medicaid plans, following the end of a pandemic-era policy that required insurers to keep members enrolled. 

The Details: The end of the COVID-19 public health emergency triggered significant changes to Medicaid coverage, including the end of the continuous enrollment provision, which prevented states from disenrolling members during the pandemic. Beginning on April 1, 2023, states began the process of redetermining eligibility for all Medicaid enrollees, which created a disparity between payments from states and rising trends in medical expenses for insurers. 

Analysts at William Blair recently noted that large managed care organizations (MCOs) seem to be facing pressure regarding Medicaid utilization. At the same time, outdated data often determine the premiums they receive from states.

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Effects on Insurers: Elevance Health, Inc. (NYSE:ELV) lowered its annual profit forecast Thursday due to persistently high medical costs tied to its Medicaid plans, which account for 20% of the company's total medical membership. 

“The issues impacting the Medicaid business are time-bound,” Elevance CEO Gail Boudreaux said on the company's earnings call. 

CVS Health Corp. (NYSE:CVS) replaced its CEO on Friday and cut its third-quarter outlook to earnings of between $1.05 and $1.10, compared to the consensus estimate of $1.70. The company cited "elevated medical cost pressures in the Health Care Benefits segment" as a cause of the revision.  

UnitedHealth Group Inc. (NYSE:UNH) reported its third-quarter results on Tuesday and also lowered its annual profit forecast as challenges across its government-supported health insurance businesses continue. 

UnitedHealth's president and CFO John Rex pointed to "the continued timing mismatch between the current health status of Medicaid members and state rate updates" as an ongoing pressure point for the company. 

"As a result of the lagging care activity data, as well as the annual rate cycle timing, updates remain well short of current care activity, a factor that for us was more pronounced through the period than anticipated," Rex said on the company's post-earnings conference call. 

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